500 Brickell Owners May be Slapped with a $3.6 Million Special Assessment Due to Chinese Drywall

I reported on March 23, that 25 condos in the east tower at 500 Brickell have Chinese drywall, according to my source at the time. I am confirming now it was actually 29 condos in the east tower of 500 Brickell that were affected with Chinese drywall.

The 500 Brickell condo association, after hiring an engineering firm to check every unit in the east tower, discovered that 29 of the 321 condo units were affected with Chinese drywall, which can have damaging and corrosive effects on building materials, equipment, appliances and other components in the structure of a development.

The Association has a Special Meeting of the Board of Directors and Members (“Special Meeting”) planned for Wednesday, June 3, 2015 at 7:00 p.m. to vote on whether to authorize the Board to obtain a line of credit and to vote on the adoption of a special assessment with respect to the proposed removal and replacement of Chinese Drywall in the east tower of 500 Brickell. The meeting package for the Special Meeting, which will include an explanation letter, Notice of the Special Meeting, Special Meeting Agenda, Certificate of Appointment of Voting Member and a Limited Proxy, prepared by the association’s attorneys must be sent to all owners before May 20, 2015 (I obtained a copy of this package recently).

The explanation letter to the unit owners confirms that 29 of the 321 condo units in the east tower were affected with Chinese drywall after an inspection in 2014. In addition, it explains that the Chinese drywall should not remain on the premises for a prolonged period of time because of the negative affects on the condo values in the building, and the fact that the presence could further lead to health-related claims by affected residents, possibly resulting in additional liability to the Association.

As a result, the Association is actively pursuing a claim against the contractors of 500 Brickell, Facchina-McGaughan, LLC and Caceres Drywall Corp., in connection with the finding of Chinese drywall (Case No. 2014-012355-CA-10 in Miami-Dade Circuit Court). However, because of the severity of effect that Chinese drywall can cause, the Board cannot wait for the outcome of the litigation against the contractors to resolve the pesky situation. Accordingly, the Board obtained bids and is in the process of hiring a contractor to remove and replace the Chinese drywall with an anticipated estimated cost of $3.3 Million.

Because the Board does not have $3.3 Million in reserve funds to fix the problem, the Board is considering its options to generate the funds to complete the work, such as obtaining a line of credit, which must be approved by the entire Board and at least 2/3 of the unit owners. If the line of credit is not approved by unit owners, the unit owners will be asked to approve a special assessment in the amount of $3.6 Million.

The following is an excerpt from the explanation letter that will soon go out to the unit owners explaining the Board’s option:

“Bids have been obtained, and the board is in the process of hiring a contractor, to perform the removal and replacement of the Chinese Drywall. Unfortunately, the work is estimated to cost $3.3 million, and the Association does not have the funds in reserve for the unanticipated necessary work. Therefore, the Board is considering its options for generating the funds needed to complete the work.

One option is to specially assess the unit owners to raise the needed funds. However, this option would require all owners to immediately pay a large sum of money In order to generate the amount required to perform the work. Another alternative is to obtain a line of credit which could provide the Association with immediate access to the funds needed to perform the work while also providing the Association with the ability to defer repayment of the principal borrowed for some time after the issuance of the line of credit. During the additional time period that may be afforded should the Association be able to obtain a line of credit, it is our hope that we may be able to successfully resolve our claim against the Contractors, in which case we hope to use the funds that may be recovered from such case in order to pay down what had to be borrowed to remove and replace the Chinese Drywall. Additionally, during the period of time before the principal on a line of credit will have to be repaid, we anticipate little if any need to increase the level of assessments charged to the owners In connection with the removal and replacement of the Chinese Drywall or the interest payments that will have to be made during such time. Lastly, if we have not recovered our damages from the Contractors before the time that the principal borrowed on the line of credit must be repaid, then the impact resulting from an assessment that may have to be imposed upon the owners will be lessened given that the time period to pay back the borrowed funds will be stretched out, therefore giving the owners the ability to spread out the payment of their share of the funds assessed upon them to repay the lender. Unfortunately, in the event that we are unable to recover from the Contractors as specified above, then the repayment obligations related to the loan may require monthly maintenance assessment fees to increase by an estimated twenty-five percent (25%) and the period to pay back the loan is expected to be ten (10) years.

Because of the benefits described above, the Board favors being able to obtain a line of credit to obtain the funds required to pay for the removal and replacement of the Chinese Drywall. However, the Association’s governing documents prevent us from obtaining the desired line of credit without first obtaining the approval of the unit owners. Specifically, the line of credit described above will have to be approved by the entire Board and at least two-thirds (2/3) of the units represented at a meeting of the owners. Enclosed with this letter you will find documents related to a combined meeting of the Board and unit owners which is scheduled to take place on Wednesday, June 3, 2015, at 7:00 p.m., in the Association’s Club Room located at 55 S.E. 6th Street, Miami, FL 33131. At such meeting the Board and unit owners will be asked to vote on the approval of the line of credit. For the many reasons stated above, It Is our hope that the vote to approve the line of credit is successful.

If the line of credit is not approved by the unit owners, the Board will have to impose a special assessment in order to generate the funds needed for the work. As indicated above, it is the Board’s position that it is necessary to have the Chinese Drywall removed and replaced as soon as possible in order to protect the health, safety and welfare of those residing within the building and to further protect the units and common element from further damage. Therefore, while the Board feels that it is empowered to adopt the special assessment on its own to raise the funds required to remove and replace the Chinese Drywall, the Association’s governing documents provide that such a special assessment should be approved by a majority of the owners represented at a meeting. Accordingly, at the above described Meeting, the owners are also asked to approve a special assessment In the amount of $3,600,000.00. However, given the need to remove and replace the Chinese Drywall, the Board of Directors reserves the right to proceed with the imposition of the special assessment even if the unit owners fail to approve same.”

Disclaimer: Although my source is highly credible, my source will remain confidential. The information contained herein is for informative purposes only and should not be relied upon.