 And welcome to another episode of Kondo Insider. My name is Jane Sugimura, and I'm your host today. And we are going to be talking about how the coronavirus pandemic is affecting Kondo living. And I have as my guest, my co-host, Richard Emery. Hi, Richard. Aloha, Jane. Nice to see you. Nice to see you. And today you're wearing your associate hat, and you're going to be talking from a standpoint of a property management company. Well, yeah, I think I've been in the industry for 25 years, so I'm an industry veteran, and I think it'll be a mistake for anybody on an association board to think that the COVID-19 pandemic is not going to have an effect on association budgets. Okay, but this COVID-19 pandemic, it's resulted in an order from the governor and from the mayor for people to stay at home, work at home, and it's resulted in a situation where you've got people in your condominium, home all day long, and people who are out of work. And so, you know, there's a concern that, you know, the owners won't be able to pay maintenance fees and, you know, what happens to the cash flow and how do you pay your bills. And, oh, before we get started, what about the workers who, you know, work for the association, the maintenance people, the housekeeping, the security guards? Are they essential workers under the government mandates? Everything that I have read says that the employees of an association are an essential worker. They even encourage associations to look at their staffing level, look for areas they might be able to mitigate the social distancing type of issue. But the people necessary to maintain the association and safe living and the contractors who serve the association are all essential workers. Okay, so if you have people who live in condos and serve on boards, I mean, they, you know, you kind of answered the question about what do we do with our workers? Do we have to lay them off or, you know, how do we get around the social distancing? How do you do that with these workers? Well, I think it's hard, you know, because if you have two plumbers working together on a bad pipe and one has to hold the pipe, the other holds the wrench. You know, it's hard to have pure social distancing. But I think what they want you to use is common sense and do what you can do to create social distancing. But you certainly have to maintain the property and you have to have in a safe, healthy environment so people can live there as best they can. And I think that's the standard rule. And, you know, what I'm hearing too is that a lot of associations are instructing their housekeeping or maintenance whoever does the cleaning. I mean, they've got people now wiping down elevator buttons, right? And doorknobs and things that people touch regularly? Well, I think associations in general are taking a more proactive approach in telling their janitorial services. I know even the ones that contract that I've gotten notices from them, what they're doing to wipe down the buttons, the doorknobs, the railings and those things that are more regular basis with the proper cleaners. So I think that's going to be pretty much a given. I think the other issue that's out there is if you do have a case of a COVID-19 resident, what do you do then? Because you get into all these notice issues and discriminatory type claims if you're talking about people's health conditions. So it's open to a whole new world for association. Yes. Now that you brought it up, what do you do when you find out that somebody in the building has been tested positive for COVID-19? Because if HIPAA, you can't tell people, you know, oh, Joe Blow in Unit 1B has got tested positive. You can't say that, right? Right. Everything I've read says that you don't want to say that. You don't want to say the person in Unit 102 has COVID-19 and their name is Joe Blow. What you want to do is, A, talk to your attorney and the Department of Health because there are people who are coming back from the mainland on that automatic 14-day quarantine that don't have any symptoms. And you don't want to create widespread panic because of the fact they happen to be in this 14-day quarantine for self-protection purposes. So I think it'd be very, very careful. And if you have a real case and it's a full-blown issue, I'd be talking with the attorney about the things you can say and you can't say. Okay. And another thing that is near and dear to people who live in condos, the amenities, the pool, the basketball court, the tennis court, what about those amenities? I'm hearing that most associations are closing them. Well, I think they can. And if the board feels like it's really a self-governance issue, what associations want to do, every association is going to be constructed a little differently with different security and different amenities. So I think the boards do have the right to close the pool and close the gym and close the areas. But I do know of condos that have created indemnity agreements. And you can use the pool, but only four people at the pool at one time and you have to reserve the space. So they've tried to create some tolerance on the amenities. But frankly, the board has to write and should look at that very carefully about closing common areas to help prevent the spread. And what do you say, what do you say, Richard, when you have homeowners who say, hey, this is our, this is private property. The government can't tell us to shut it down. Well, when they're arrested and they're in jail because the police said, like there's been several what they call covenients, I guess, people who say, you can't do that because I'm an American. I have my rights. The truth is the governor has rights under the law to take any precaution necessary for the health and safety of our residents. And he's ordered, he and the mayor have ordered these items close. And of course, I'm going to say mayors because it's not just a Wahoo. So I think you have to say it's a difficult time right now. They have the right to do it. They're doing it for your best interest. Okay, then let's get to another subject that we know was happening. What about delinquencies? What are you seeing in the industry? Well, I think we haven't seen anything yet because this is so early on, but I would say that it's coming. I think for any board to not believe that they're going to end up with some delinquencies, they're going to have people with lost jobs, lost hours, circumstances. Maybe they were furloughed because their company's business is down, like restaurants and things like that, which aren't pure tourism. And I think we're going to see delinquencies and I think what you need is a proactive approach because there's two hurdles with this with me. Number one, the administrative nightmare you're going to create by not doing something proactive and be what you can do to survive the loss of temporary income during this situation. You said temporary income. You're talking about people not paying their maintenance fees. Right. You have a short term payment of maintenance because let's just say I've lost my job and I go to the board and say, I can't pay my maintenance fees. I'll make it up on a monthly basis when I get my job back. And then another person comes and said, well, I want to pay 50% of my maintenance fees because of this problem and that problem. And then Richard says, well, you know, my neighbors aren't paying. I'm not going to pay. It's a very slippery slope. If you don't create a financial cash flow plan to deal with this interim period while we're in this shutdown of the state. Okay. So, you know, so, so what do you suggest that boards do? I mean, they should anticipate that people aren't some people, not everybody, but some of their owners will not be able to pay. Well, I'm getting a little notice across my computer saying we need to take a break. So I'll give you my four points right after we take the break. Okay. Why don't we take a break and come back. I'm looking forward to you joining me every Monday at 11am. Aloha. Aloha. My name is Duration. I'm the host of Finding Our Future here on Think Tech Hawaii. I'm here every other Tuesday from 1 to 130pm. Here on this show I cover issues around sustainability, you know, global issues that matter for young people for future generations and other social justice issues. Please join us. It's live streamed on Think Tech Hawaii and also uploaded on YouTube. Okay. We're back for the second part of our condom insider show. And this time we're talking about how the coronavirus pandemic is affecting condominium associations. And my guest today is Richard Emery, Vice President of Associate Hawaii. And Richard, you were going to tell me about the four points that we have to do to address these delinquencies that are going to happen. Actually, there's five points. Let me take them one at a time. The number one thing that I would do is, first of all, the condo statute allows the board to mend its budget at any time. The fact you adopt one annually doesn't mean you can't in the middle of the year because of new circumstances amend your budget. I would look at going back and following my logic here, amending your budget and look at the contributions you've made to reserves through March. That's three months. And making that the total contributions for the calendar year 2020. Therefore, indirectly, you've made 100% of your reserve contributions for the year and you're suspending what you originally planned for the next nine months. By doing that, for the next nine months, you can reduce your maintenance fees for all owners and treat them all the same by the value of the reserve contributions, which in some cases is $200 or $300 a month. That's the first thing I would take a look at. Look at amending my budget, amending the reserve study in the budget so you still comply with the law and have a reserve study, and just amending it so the contributions only reflect the first three months. Therefore, you've met that requirement and therefore you can adjust your budget downward for the balance of the year to get people a break. But there are people who say, well, this is April and Hawaii doesn't have as many incidences of COVID-19 and the rate of death, although we have some, way six, I think, it's not like it is on the mainland. So why don't we just wait and see? Maybe it will flatten and it will go away sooner. But that's apples and oranges because when you look at the COVID-19 problem, flattening, less death, people get well sooner. That doesn't mention the economy getting well sooner. If you think people are going to be flooding back to Hawaii, these jobs and restaurants are going to go back to norm instantly, they're not going to. There's going to be a loss of jobs. You've already had 200,000 unemployment claims here in Hawaii. It's going to take at least a year for that to come back to any reasonable norm and probably not back to where it was when we had this problem begin. So I think it's a terrible decision to think that all of a sudden two months, yeah, maybe safer for your health, but it's not going to be safer for your condo finances. Okay, and then before we started the show, you were talking to that Hawaii depends on their visitors. And since this is a worldwide pandemic, which means that people not only on the mainland USA, but in Europe and in Asia, these are all people who come to Hawaii to vacation. And they don't have any jobs or income now. And so it may take them a while before they can even pay for a ticket to come to Hawaii. Absolutely. The ultimate greater effect is going to be on the economy and jobs. I think we'll survive the pandemic. I think that the state has done a good job and the federal government. I think they're doing things to have people survive this by these, I'm going to call them grants or money they're putting in everybody's pocket, but it's not going to solve the problem at the end of the day. It's treading water. It's just keeping us ahead of the above water until this gets behind us and the economy can rebuild. And that's going to take one or two years. The depression of 1929 took 10 years. Okay. And then so what do we do while we're waiting, you know, instead of waiting, you mentioned that we could do the, we can adjust the budget. Yeah, amend the budget. Reduce your maintenance fees by the amount of the reserve contributions for the balance of this year. Number two, I would then extend the payment plan. Most companies, most associations have a payment plan in the 10th of the month, sometimes the 15th. I would extend the deadline before late fees are charged until the 20th of the month because people are going to be looking for this money coming in from the government. And my concern in part is that if you can imagine all this is electronic world, all these late fees automatically applied and people making partial payments, it's going to screw the bookkeeping up to no end. And then if the owners who have to pay this get the sense not everybody's treated equally, you're going to find maybe even greater delinquency saying, well, you're giving those guys a break with no interest. I'll just keep my money just in case I need it. And I'm not going to pay either. And associations depend on enough cash flow to cover the operating expenses. Think about it this way. If we did nothing and only part of the people paid, you're not going to have the money to make the reserve contributions anyway, because they're not going to have enough cash flow. So go ahead and address it head on. Okay, and then there are people who can pay their maintenance fees and they have a problem with other people not stepping up to the plate and doing their part in paying their maintenance fees. And because they feel like, oh, well, I have the money in the bank, you guys should have saved. You should have saved and for this, you can't look to us to bail you out. So what do you say to the people who talk like that or who have that feeling? Well, that's why my plan works because we can't deal with the what it could have shown us of what people should have done. But we can say we're going to treat all the owners equally. We're going to adjust our budget so the maintenance fees, the reduced maintenance fees, apply to everybody equally. And so if you have the money, you're getting a break during the time being. If you don't have the money, you're getting a break to help you survive this period of time. And at the same time, you're dealing with the financial reality that everybody's going to have the money. Okay, and you know, but there are people who say that, you know, well, you know, if you reduce it by 10%, then even if you have it, you know, people are going to take the 10% and they're not going to step up to the plate and pay what is really due. And why should we take less if they can pay if they can pay? And I can see your point, but you can't make exceptions and you can't, you know, be looking at, oh, well, we got to do Plan A for Unit 101 and Plan B for the next person because that is an administrative nightmare. But what do you say to the person like that says, you know, this says, well, I'm against a 10% cut across the board because there are people who could pay the maintenance fees and they should pay it all. Well, so I can say the same thing. Why is the federal government giving every single person $1,200, every married person $2,400 plus $500 a kid? The economic times require it. And you're better off having a balanced plan that addresses this head-on reduces the fees of people have the best chance to be able to make their obligation and then we'll adjust the reserves down the road. But you know, if you don't do anything, you're not going to have the money to put in the reserves anyway. And one of the things that has come about because of the pandemic and this is from the federal government. Associations can't do foreclosure. Well, they can't do foreclosures on government-backed mortgages, but, you know, the courts are all closed. You couldn't do a foreclosure if you wanted to do it. I don't think you want to do foreclosures. I think you want to have payment plans and you want to have, see, I would never stop the late fees. By me moving the payment due date to the 20th and having the late fee thereafter, I'm still creating the center of the pay because you're going to have a late fee. I'm just giving them some wiggle room because we don't know when they're going to get paid and how they're going to get paid and where they're going to get the money. You're better off not letting your computer take control of all these ledgers and blow it up into another area because the other thing I would do is if you have short-term cash flow, not enough people are paying to cover the operating expenses, I've been asked time and time again, do these government payroll protection plans, where they're going to theoretically wave the loan at the end of the day if you follow a certain step, do they apply to associations? Well, I'm not sure if they do, but the reality of it is the statute today without the 50% owner approval required in the statute allows you to borrow from reserves. And on your reserves now, you're making a half a percent. If you have to borrow the money to help cover this period for this year, I'll say 2020, you're better off covering shortfalls from your reserves and then refunding it according to the statute is cheaper than trying to go to a bank, which the rates were 3.5% last time I looked at it. So if you want to borrow from your reserves, what do you have to do? The board has got to do a resolution. Do you have to get owner's consent? Word resolution, that's it. We don't have to get a owner's consent. No. And this would be just a temporary borrowing. Well, the statute says under emergency conditions, you can borrow from the reserves. I would hate to have anyone argue before a judge that says it's an emergency condition. And you have then three years to repay the money. And so if you had to borrow the money, you would then have three years under the statute to repay the money into the reserves. Okay. And you also have some other suggestions for associations on how to deal with this economic, their economic situation. What about the capital improvement projects that are in the queue for 2020? All of us who sit on boards of associations, we have a list of capital improvement projects that were budgeted for 2020. What do we do? Well, I would defer as many of those as I can. Think about it this way. If you had a capital improvement project which was necessary but not critical, you now have the problem of people coming on site, social distancing, getting people to come out right now. Certainly, I don't see a lot of contractors out there for the next month or two just because of the circumstances. So I would defer as many capital projects as I can that aren't going to affect the health and well-being of the project. And then what do we do? We just tack them on to our list for 2021? Well, I think that I would be, if I was on the board, I'd be looking at taking 2020, treading water, getting through it as best I can with the cash flow to pay the operating cost. And then when I did the 2021 reserve study required, I'd be looking at then repositioning some of these deferred assets and what my contribution should be based on the circumstances. And what do you say to board members who say, well, let's not do anything now. Why don't we just wait and see what our delinquency is going to be? And then we can come up with a proposal. Why don't we wait till May and see how many, see exactly how bad our cash flow is going to be? What do you say to people who say that? Well, I don't think you'll know in May because people may have their plan. They think they can make the payment in May, but it turns out they lose their job. They can't make it in June, right? Or something else comes up that they can't make the money in June. I don't think you know that. And when you wait, you actually create unknown. People don't have any stability with the plan is. Are we not better as an association board saying, here's our plan. We're going to reduce these fees and costs and contributions. Adjust in 2021. Treat everybody equally by reducing the fees by the amount of reserves theoretically. And we've also reduced some other costs and operations, custom labor and payroll hours, whatever it may be to get through this. So we're reducing the fees for the balance of this year as such. Treating everybody exactly the same, giving them a little bit more time to make their payments by the 20 day grace period. Continuing to charge the late fees and having a solid plan before everybody that they know what to expect and how they're being treated and they're being treated the same as everybody else in the project. And so, you know, and talking to associations, I mean, even if we are able to come out of this and let's say the government says it says makes an announcement in mid April that they're going to extend the shutdown orders to the end of May. And if we are able to flatten the curve, maybe we'll open up in mid June. And let's say that happens. Or that's, that's what the plan is. I mean, what do you say to associations to say, well, you know, that's only three months. I think we can tough it out three months. Like I said earlier, that may be true. They open the doors in June. But there's not going to be a floodgated people coming here. It's not going to restore the jobs. You know, and this is going to be a great economic hardship in a lot of our residents. Most people in the world today live somewhat hand to mouth. They don't have a lot of extra cash. And the people who have the extra cash saying that don't realize the reality that they can put people under by doing this. And the courts aren't going to support this. The courts aren't going to allow you to go simply foreclose. And I'm not sure if you foreclose who's going to buy. You know, you have to get mortgages and they've got to have a job too. So I think the better thing to do is to say, look, we have a problem. You know, we have a problem, Houston. I think what the exact words were not movie, but anyway, and have an aggressive budget to say, here's how we're going to cope with it. And we don't have the ability the government has that I don't recommend they go up, go print dollar bills on their coffee machine. And you mentioned something in passing about the about the proposers about the courts being closed. And that is true. And right now they are closed. Both state and federal courts are closed through the end of April. And right now, you know, we're getting signals that maybe they may be extending it, but we don't know until the end of, I mean, maybe in mid April they will know whether or not they're going to be extending it. And let's say, you know, it gets extended to Mayor June. That means that if anybody wants to take any enforcement, if any association wants to do any enforcement issues, they can't do it anyway. That's correct. But the reality of it is under the current condo statute, the owners can get a guaranteed 12 month payment plan period. I don't want to see an association going before judge and trying to say during this pandemic why they're going to throw somebody out. They're going to want you to find solutions, payment plans and things like that. So my answer is don't let it get out of control. You can amend your budget and take some aggressive action now. And then you can always amend your budget again in September if you find everything is much better than we thought it was. And so do you have any kind of last words that you want to, words of advice that you want to tell associations that they might want to consider in these times? Well, certainly I wish everybody to be safe out there. And I think they should follow the instructions of our mayor and our governor about social distancing and wearing masks and doing what we can to do. But my advice is simply why I said in the beginning, be proactive, develop a plan now that treats everybody equally, make some hard decisions, and then you can adjust in the future if you have to. But don't wait. It'll be too late if you wait. Okay. Well, thank you, Richard, for being on Condo Insider. This is the show for people who live in condos and work in condos. And we hope that you will join us next week for another episode. And Richard, you're going to be on, you're doing the show next week. I am doing the show next week. Can you tell us what you're going to be doing the show on? It's a surprise show, but it'll be really exciting. Okay. So now you have it, so you need to tune in next week. Thank you for joining us today and Mahalo for tuning in. Thank you.