February 9, 2009

Association Battle Over Unpaid Bills Brewing At The Beacon?

Beacon COA Notice

It’s a pluged-in tipster that directs us to the notices hung in the windows of The Beacon Commercial Association at 266 King (the former Beacon sales office). From the notice:

Please note that the Beacon Residential Association (ROA) is required to pay its share of the project’s Shared Expenses to the Beacon Commercial Association (COA), which manages the common areas of the project. However, with the exception of an insurance payment, the ROA has made no payments to the COA since October 1, 2008. It is currently more than $600,000 behind on its required monthly contributions, and as of February 1, this amount will be nearly three-quarters of a million dollars.

Apparently some “non-essential” building services such as landscaping and janitorial have been terminated, the security vendor has sent a notice to terminate their services, and shutoff notices from PG&E and the San Francisco Water Department have been building up.

The COA believes that a utility shutoff could have dire consequences for the project, including the possibility that large areas of the project might be uninhabitable.

Uninhabitable? Can any plugged-in residents shed some light and assuage some fears?

UPDATE: A plugged-in reader sheds some light on the spat:

The Beacon Commercial Association is purposely spreading disinformation to get leverage in an ongoing spat against the Homeowner's Association regarding the proper allocation of association fees.
Basically, the two sides disagree on how much the HOA is supposed to contribute to the shared budget. My (imperfect) understanding is that the HOA has been overpaying for years because of sloppy accounting by the previous property management company who was used by both the COA and HOA, but favored the COA over the HOA.
When the new property management company discovered the error and tried to balance things out, the COA (but not the HOA) basically fired them and hired their own separate property management company. So now we have two property management companies for the same building. Genius.
Anyway, so the two sides are in mediation or arbitration to figure out who owes what. In the meantime, the HOA has repeatedly offered to pay its share of the budget for stuff like PG&E and the water bill. The COA, however, has refused to accept any payment from the HOA unless the HOA pays the entire monthly association fee that the COA unilateraly contends is owed.
And then the COA turns around and says that the HOA is not picking up the slack on the bills, when in reality, the COA is not letting the HOA pay them in the first place. I believe I heard the HOA has tried to pay PG&E directly, but PG&E didn't want that arrangement for some reason.
This is actually the second time the COA has done this disinformation campaign. The first was over the Christmas holidays, when it posted notices around the Beacon that our gas and water might be turned off at any time due to this "non-payment" issue.

First Published: February 9, 2009 11:00 AM

Comments from "Plugged In" Readers

Time for an "Extra Special" assessment?

Posted by: BeaconJanitor at February 9, 2009 11:16 AM

It's just the COA's tactics trying to get the ROA to pay for disputed items before audits are completed.

Posted by: Missionbayer at February 9, 2009 11:18 AM

That's unfortunate ... happy to know my building has a very experienced Board for the HOA with an especially astute Treasurer who worked with the Board to set aside a reserve to buffer possible foreclosures. Something mentioned at a recent building meeting - the renters looking for places right now are desperate and unusually risky - sadly, a lot of unit owners are equally desperate. Make sure you have condo insurance - those sprinkler systems pumping out 100 gallons of water per minute are unforgiving!

Posted by: jamie at February 9, 2009 11:21 AM

The Beacon Commercial Association is purposely spreading disinformation to get leverage in an ongoing spat against the Homeowner's Association regarding the proper allocation of association fees.

Basically, the two sides disagree on how much the HOA is supposed to contribute to the shared budget. My (imperfect) understanding is that the HOA has been overpaying for years because of sloppy accounting by the previous property management company who was used by both the COA and HOA, but favored the COA over the HOA.

When the new property management company discovered the error and tried to balance things out, the COA (but not the HOA) basically fired them and hired their own separate property management company. So now we have two property management companies for the same building. Genius.

Anyway, so the two sides are in mediation or arbitration to figure out who owes what. In the meantime, the HOA has repeatedly offered to pay its share of the budget for stuff like PG&E and the water bill. The COA, however, has refused to accept any payment from the HOA unless the HOA pays the entire monthly association fee that the COA unilateraly contends is owed.

And then the COA turns around and says that the HOA is not picking up the slack on the bills, when in reality, the COA is not letting the HOA pay them in the first place. I believe I heard the HOA has tried to pay PG&E directly, but PG&E didn't want that arrangement for some reason.

This is actually the second time the COA has done this disinformation campaign. The first was over the Christmas holidays, when it posted notices around the Beacon that our gas and water might be turned off at any time due to this "non-payment" issue.

Posted by: War at February 9, 2009 11:30 AM

Hope no one has an open at the Beacon while these are up. How does something like this happen. Terrible.

Posted by: Ryan at February 9, 2009 11:33 AM

I think these things can potentially happen in any building with both commercial and residential associations.

Posted by: missionbayer at February 9, 2009 11:43 AM

Sounds like some sharks in the commercial side of things were ripping off the homeowners ... I'd wager its pretty common (my parents had a similar situation in a vacation condo complex they owned units in up in Canada)-- the general partners were ripping off the limited partners for decades by overcharging fees, not paying market rates for their rent and a whole huge variety of other shady dealings.

Posted by: Jimmy (No Longer Bitter) at February 9, 2009 12:00 PM

Beacon is lucky to have a sophisticated HOA Board to protect the interest of the residents. When the disputes are finally resolved, I suspect the ROA will be entitled to collect quite a bit of money from the commercial owners.

Posted by: Lucky at February 9, 2009 12:10 PM

To be fair, I don't know if the COA knew that the HOA was overpaying, at least initially. From what I understand, the overpayments weren't discovered until the new property management company took over. And I'm assuming the members of the COA have some reason for insisting that the HOA pay more (I'm making the assumption the COA is not populated by a bunch of jerks).

Anyway, at the end of the day, people will figure out who owes what and things will be back to normal.

Personally, I think the COA should be trying to figure out how to rent out the remaining commercial space on the property (every time I walk by the COA office, I think that it's too bad it's being used as a sparsely furnished property management office rather than something like a restaurant or a retail space).

Posted by: War at February 9, 2009 12:14 PM

Who was the previous and current property management association?

Posted by: Inquiring SF Minds at February 9, 2009 12:27 PM

why is it with larger buildings with more units, there does not seem to be lower HOA fees due to economies of scale? where does all the money go? the beacon has $600-700 HOA fees, not even including parking. multiply that by the number of units, does it really cost hundreds of thousands to maintain a building per month?

Posted by: condoshopper at February 9, 2009 12:37 PM

This is an interesting dispute, given that our public policy increasingly encourages mixed-use properties, but there are built in tensions between uses that need to be worked out. I used to think it was only the development process that presented difficulties (obtaining financing, tenanting, negotiationg shared parking,etc) but these properties are clearly more complicated for the long haul. Which doesn't mean they aren't still the best thing, in urban design and green terms, but their long term management clearly needs a high degree of transparency to ensure that no one feels ripped off. That's got to be difficult to achieve when one tenant is safeway, and another is the owner of a studio condo.

Posted by: curmudgeon at February 9, 2009 12:38 PM

Sounds like they need to figure out more than just the correct amount of money the HOA owes. Without an agreement about each party's responsibilities during future disputes (and I get a sense there are going to be more of these) this looks like a rocky road.

Posted by: Salarywoman at February 9, 2009 12:38 PM

Wait till the homeowners sees the legal bill.
Many HOAs are tainted by special interests, shady dealings, selfish board members spending money that "enhances" the value of their unit only, or inflated vendor prices. If you think you've got a great egalitarian HOA board, it just means you don't know what they've been up to. HOA's are like the government- for every dollar you pay in, 50 cents is lost to administration.

Posted by: young_family_in_city at February 9, 2009 12:48 PM

"why is it with larger buildings with more units, there does not seem to be lower HOA fees due to economies of scale? where does all the money go? the beacon has $600-700..."

A large portion of the Beacon HOA fees goes to earthquake insurance, which is one thing unique about this development. Most, if not all, of the residential buildings in South Beach/Mission Bay do not carry earthquake insurance. So, if you factor that into the equation, the Beacon HOA fees are actually pretty low.

Posted by: Lucky at February 9, 2009 12:49 PM

Beacon commercial has a great anchor in Safeway, but they also have at least one rather long term vacancy and Borders, though it appears busy in that location, has serious problems as a corporation that could put that location at risk. The book business is especially fickle and prone to transitions.

It would probably be best for everyone if the two organizations could agree to give each other a break and focus on trying to lighten the load however that might be possible. With all the energy they are putting into this conflict they could hire a specialist to make sure the commercial units don't stay vacant.

Posted by: Mole Man at February 9, 2009 12:56 PM

Gosh, all this is so reminiscent of the 26-year ongoing struggle in my own building between the residential and commercial associations. I think it's almost an inevitability in "mixed use" buildings. Generally the commercial side has a relationship with the developer and sets things up to favor itself before the residential units are sold. From then on, the homeowners are a dependable piggy bank for the commercial management if they let themselves be.

Posted by: BT at February 9, 2009 12:58 PM

BT,
What building are you referring to?

Posted by: lucky at February 9, 2009 1:01 PM

Curmudgeon,

I completely agree. There's not a planner or architect that I know of that has ever even contemplated a situation like the current one at the Beacon. Or, most shockingly, the 26-year old conflict at BT's building (whatever it is).

This thread has really opened my eyes. I still think that mixed use is a very good idea but a lot of work needs to be done on the "standard" forms of the agreements between the various entities occupying a building or mixed use projects will fall out of favor with residential buyers. They have already fallen out of favor with me.

Posted by: Salarywoman at February 9, 2009 1:28 PM

Truly a shame...

I was wondering how HOAs at this ginormous building (aren't there like 600 units?) could reach the upper 800s (WITHOUT PARKING!!!)

Anyone who buys at this building is jumping onto a sinking ship...when your HOAs with parking are $1200 for a 600k 2/2, you're in trouble.

The coup de grace will be when Avalon 3 opens...effectively destroying the rental market in South Beach/Mission Bay

Posted by: rincon hill-billy at February 9, 2009 1:56 PM

Does anyone know the composition of the Beacon COA? The SF property tax website shows 20 parcels at 200 King Street. I'm assuming that these are the commercial units - the residential units are at 250-260 King. The property tax site doesn't give the property owner's name - just the mailing address. Here's a sample of those addresses (I found the company name based on the address):

- 400 Race Street San Jose (Avalon Bay)
- 3 Galleria Tower Suite 500, Dallas TX (Invesco)
- 4 Embarcadero Center Suite 3300 (Wilson Meany Sullivan)

Those are some pretty heavy hitters to have sitting at the table when you're discussing the budget at an HOA meeting. Borders and Safeway are their tenants.

Anyone care to mention who the management companies are (were)?

Posted by: FSBO at February 9, 2009 2:14 PM

[i]"A large portion of the Beacon HOA fees goes to earthquake insurance, which is one thing unique about this development...So, if you factor that into the equation, the Beacon HOA fees are actually pretty low."[/i]

While I do not know the specifics at Beacon, this is a common misconception. Most EQ insurance pays out only very small amounts, after huge deductions, and largely for reconstruction according to code prevalent at the time of original construction (i.e. not that valid and required at the time of reconstruction). Of course it all comes with a huge premium. Guess who benefits from this? The insurance broker (a species closely related to the RE agent). Often the HOA decision makers are either given some kind of a sweetheart deal to sign on the dotted line or are gullible enough to be brainwashed that EQ insurance is so rare that it ought to be grabbed at any price when offered.

Most HOA members do not bother to read the EQ policy details (or are too dumb to understand them) and the broker happily pockets his commission every year...

Posted by: TrailerTrash at February 9, 2009 3:03 PM

That's why the unit owners should take out an assessment policy to cover the deductible. The premium for that is relatively modest.

Posted by: missionbayer at February 9, 2009 3:20 PM

@TrailerTrash

I'm no expert on insurance but I can tell you that, despite the expense, institutional owners of many of the largest office buildings in the downtown area elect quake coverage.

These are sophisticated investors who see value for the premium dollars.

Also, the CC&Rs typically spell-out in some detail what types of insurance coverages are to be carried by the HOA. If quake coverage is specified, it would be nearly impossible to get the votes to delete the requirement.

Posted by: SausalitoRes at February 9, 2009 3:58 PM

I believe the HOA prefers not to have earthquake insurance coverage, but I was told the COA contractually gets the right to make this decision and the COA has elected every year to get such coverage.

Posted by: War at February 9, 2009 4:42 PM

I wonder how's the pool "scene" considering the pool might not be heated anymore?

Posted by: anonymous at February 9, 2009 4:56 PM

I'd say the scene may have shrunk considerably ... since it was 45 degrees outside this morning.

Posted by: Jimmy (No Longer Bitter) at February 9, 2009 6:48 PM

Why wasn't this place built with separate utility meters? Why are the HOA and COA on the same utility bills?

Posted by: bgelldawg at February 9, 2009 7:20 PM

Apparently that was done so that the COA could rip off the HOA?

I'm sure they could retrofit that and 'part ways' somehow. But then the commercial landlords wouldn't get a subsidy on their operating costs from the homeowners.

Posted by: Jimmy (No Longer Bitter) at February 9, 2009 7:39 PM

LOL Jimmy - that was the perfect answer! :-)

Posted by: Richie Cunningham at February 9, 2009 7:41 PM

Often the HOA decision makers are either given some kind of a sweetheart deal to sign on the dotted line or are gullible enough to be brainwashed that EQ insurance is so rare that it ought to be grabbed at any price when offered.

gotta love the conspiracy theorists.... the fact is there are risk averse people and less risk averse... if you are scared of your shadow you load up with every form of insurance you can get.

I'm the president of my HOA and I've tried to convince other owners and others on the Board to kill our EQ insurance. The majority refuse... and at least in our building the EQ insurance isn't that expensive... it represents about 10% or 11% of our HOA dues... so it's not killing me (or us) to keep it... I almost wish it was higher so it would be easier to kill.

Some buyers refuse to buy in buildings without EQ insurance, some refuse to buy when it has EQ insurance, and most people just judge how expensive the HOA dues are and don't worry much about what's in it unless the dues are very high.

Either way, to accuse Boards of getting some kickback from Insurance agents is nonsense.

Posted by: sfrob at February 10, 2009 1:41 AM

I'd rather not say the name of my building because, honestly, I have lived and owned there for those years I mentioned and don't want to hurt values there more than reality does. Successive HOA boards, including a few years when I was HOA President, have dealt with the situation in our building pretty successfully and it has never got to the point it seems to at the Beacon. But, for example, on one occasion the commercial developer proposed hundreds of thousands of cosmetic improvements to the commercial spaces to be paid for 80% by the homeowners because, he argued, it improved the overall attractiveness of the building. We have also had the initial misallocation of utility costs but successfully renegotiated them with the commercial owners.

Regarding earthquake insurance: We also have it and I'm not sure why those other buildings who do want to cancel it. It's not a huge part of our assessments and I, for one, sleep better with some (it's impossible to buy or afford "full") coverage. Our building, at least went through 1989 with about $89,000 in damage so we have a little perspective.

Posted by: BT at February 10, 2009 10:02 AM

agree with sfrob. I bought into a new building and one of the home owners meetings was to discuss EQ insurance. The price was almost $800K, the deductible was 10 million or something like that and only covered between 10 and 20 million in damages on a building that was worth 40 million. It really did not make any financial sense given that the damage of a major earthquake was projected to be around 10 million. Still many of the homeowners wanted it and it was a close vote, those against it won.

I will say that I do have it on my current condo, but it is a two unit building and the economics work given the comfort for risk.

Posted by: viewlover at February 10, 2009 10:08 AM

Is this earthquake insurance real insurance? As in, insurance for the structure itself?

Plenty of RE agents have told me all about how you can buy your own EQ insurance...for all your stuff. Nobody seems to appreciate that the value of all my crap is a pittance compared with the value of the structure/land.

Personally, I'm surprised that there exist multi-family buildings without earthquake insurance, especially in that big giant liquefaction zone in SOMA. It seems that going w/o insurance exposes you to the potential financial weakness of your neighbors.

What does everyone do if there's a failure? What if only a handful of occupants have the financial resources to rebuild, but can't quite afford to become developers (rebuild for everyone)?

And why on earth would banks insert themselves into such a potential mess?

Posted by: El-D at February 10, 2009 10:09 AM

in many hi-rise buildings the deductible is almost as much as the projected damage, owners become developers whether they want to or not.

Also, on some of the newer buildings, in order to reach the level of damage beyond the deductible, there would have to be a pretty bad earthquake. TO the point that with or without insurance, you may not even get construction started for a few years and it will be pretty much hell on earth.

Posted by: viewlover at February 10, 2009 10:21 AM

...with or without insurance, you may not even get construction started for a few years...

My point exactly. As a potential buyer, I'm un-convinced that the market has priced seismic risk into condo values. Even a rock-solid building in a liquefaction zone can fail.

Even a not-so-gigantic earthquake that manages to activate the liquefaction zone could put condo owners in a pinch if 1) some owners don't have any financial resources; 2) the owners end up in court trying to figure out ownership issues; 3) contractors are tied up. The last step of course is that we all go broke paying rent + mortgage while we wait for courts, permits, and contractors...

Posted by: El-D at February 10, 2009 11:15 AM

What does everyone do if there's a failure? What if only a handful of occupants have the financial resources to rebuild, but can't quite afford to become developers (rebuild for everyone)?

Here's what happens: rely on the government to re-build, or better yet stimulate the local economy after such a catastrophe.

Posted by: anon1 at February 10, 2009 11:18 AM

Again, and again, that's why people should take out a loss assessement policy to cover the deductible. It only costs about $20 to $30 a month.

Posted by: Missionbayer at February 10, 2009 12:09 PM

Since the Hayes and the Potrero also have commercial space in the development could the same dispute also happen at those places also?

Posted by: Poor in Pac Heights at February 10, 2009 1:16 PM

Mixed use buildings are often a terrible idea for residents. For some reason, a lot of people are in love with the 'idea' of mixed use without ever having to live in a mixed use building. City planners should have to live in these Frankenstein creations before touting them so heavily.

There are fundamental tensions between people using a space for profit (the commercial tenants) and people using a space as their home (residents). The CC&R's are almost always written in a way that gives the balance of power to the commercial side. This is because the developer needs the commercial tenant to commit to the project during the early stages of development at which time the CC&R's are drafted. When you buy a condo in one of these places, you are presented with the CC&R's but have no say in their composition. As most home buyers are not real estate professionals, you probably don't really know what to look for anyway. And of course, your lovely real estate agent is no help at all.

Furthermore, the commercial tenant always has built in advantages over residents when it comes to the budget, allocation of expenses, and dispute resolution:

1) The commercial tenant is always more savvy about business and real estate than a bunch of residents.
2) The commercial tenant is a single entity or a small number of entities vs the homeowners who are all separate and uncoordinated. This lack of coordination is a huge disadvantage. It make decision making difficult and allows the commercial tenant to employ various 'divide and conquer' type strategies.
3) The commercial tenant's whole gig is real estate and the management of the property. Residents have their own full time jobs and lives and cannot commit the kind of resources of time and energy as the commercial tenant. As such, they usually eventually give in.

There is more, but you get the idea. I unfortunately learned this the hard way at the Marquee building (1000 Van Ness) where the crooked developer and commercial tenant made the lives of the residents financially and emotionally miserable.

Stay away from the huge mixed use projects! Buy a nice condo in a small 2-6 unit building and save on the huge (and always rising) HOA fees and all the headaches.

Posted by: Jonessss! at February 10, 2009 2:09 PM

"That's why the unit owners should take out an assessment policy to cover the deductible. The premium for that is relatively modest."

Isn't the deductible typically covered by reserves and budget than if necessary a special assesment billed to the homeowners for cost to repair above what is covered under the insurance policy if it is too small amount to make the associated repair(s)?

If so how do you figure the amount of insurance one needs to get for assesment coverage should be in the amount of the deductible noted on the master policy of the building?

Obviously it depends on how one's building Declarations are written but in general I am not sure I get the above recommendation?

I am all for loss assesment coverage btw.

Posted by: gowiththeflow at February 10, 2009 3:16 PM

Do these conflicting situations also exist in buildings that are mainly residential, but where there are 2 or 3 small stores at the ground floor? (I think this set-up describes most of the high-rise condo buildings, so i'm very curious).

Posted by: condoshopper at February 10, 2009 3:18 PM

Condoshopper, it depends on the way the CC&Rs are written. You have to read them. Be especially wary if the commercial owner is not a member of the HOA and is a separate entity. In that case, the CC&R's should specify how all the costs of running the building are allocated: utilities (unless everything (gas, electricity, trash collection, sewer etc is billed separately), janitorial, security, insurance (not just earthquake--buildings with commercial activities must have liability coverage that recognizes that), exterior and interior maintenance and so on. Also note that many residential buildings have rules about such things as the color of window coverings. Do they apply to the commercial part of the building? How about signage (any limits on it?). Are there limits on the hours or types of commercial activity (esp. such businesses as restaurants or, worse, bars and clubs)?

Even in the best cases, you have to be wary. Years ago in my building, the commercial owner went so far as to buy a unit in the building in the name of someone associated with them, then run that person for HOA president. He won and basically caved in to all the commercial demands until the rest of the homeowners wised up. Seriously. I've got lots of other horror stories.

Posted by: BT at February 10, 2009 8:45 PM

BT, thanks for the additional info. Sad that things are often so complicated, expensive, and litigious around here, for just basic things.

Posted by: condoshopper at February 11, 2009 10:29 AM

We live at the Beacon - have since June 2005. The earthquake insurance for the first year, was $134/month. Our HOA dues were $682. That's close to 20%.

Posted by: ugh at February 24, 2009 9:04 PM

Hey Salarywoman,

I've been on an HOA board in a SOMA building for years, and I've done nothing to enhance my unit or gained anything other than headaches listening to [Removed by Editor] like yourself that don't understand that running and HOA is time consuming, generally thankless, and involves a ton of hand-holding for [Removed by Editor] like yourself. Get on a board for a few years and see how it's run and take the countless idiotic potshots that uninformed lazy complaining residents toss at you before you make such stupid comments. I've really had it with your type and your self-serving attitude. Put up or shut up.

Posted by: Beuford W at February 26, 2009 12:12 AM

I have been living at the Beacon for 4 yrs. I see two groups of security staff onsite. One staff wear suites and the other staff wears security Uniforms. No matter when I come home either day or night, I always see the security stsff that wears security uniforms either walking around outside or in the garage. I see these guys all hours of the night and even when the weather is cold and raining. I spoke with the bald headed guy in the daytime and he has been doing residential security for over 10 yrs. I also spoke with the the guy that works on swing shift that has been around for a year or two and he told me he used to be a Deputy Sheriff and has been in the security field for around 20 yrs.

I sort of feel bad for these guys because when ever I come into the concierge desk, I always see two people there. To the Beacon security dressed in blue, thank you for making me feel safe!!

Posted by: Claude at August 24, 2009 1:25 AM

This thread has been really insightful! I'm currently in the process of trying to buy a unit at the Beacon, but am running into the now classic problem of getting a lender to offer financing for the Beacon because of "pending litigation". Does anyone know if the current litigation is related to this COA vs ROA conflict? Or is this something else? And any idea if its nearly some kind of resolution? Thanks!

Posted by: AnthonySF at February 8, 2010 3:06 PM

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