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RE: What is it about Condos

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Mark Johnson wrote privately:

Thanks for the reply.  However, it's necessary to subscribe to the print edition in order to read anything online.  If it's easy, send me a copy.

Mark:

Sorry, I screwed up.  Please accept my apology.  The full article follows below.

Stan R. Caldwell, P.E.
Dallas, Texas

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Many years ago in Scotland, a new game was invented. 
It was ruled "Gentlemen Only...Ladies Forbidden",
and thus the word GOLF entered the English language.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 

Lawsuit Enmeshes Vendome

Experts: Legal 'Perfect Storm' Could Cast Pall on Dallas' Condo Boom.

Dallas Business Journal - July 28, 2006

The Vendome on Turtle Creek, one of the first luxury high-rise condominium projects to hit the Dallas scene a few years ago, commanded prices as high as $4.5 million per unit. 

Now, in a lawsuit filed against the developer, general contractor and real estate agent, the project's Homeowners Association is seeking millions of dollars in damages for alleged construction defects and other issues. 
  
Complaints range from the aesthetic, such as lobby décor that's not quite up to snuff, to the potentially dangerous, such as water leaks in the elevator pits. In the spring of 2004, court documents say, an elevator inspection revealed rusted and corroded elevator ropes -- but not before one of the elevators fell two floors and injured a woman who'd just returned from her husband's funeral. 

The Vendome case has dragged on since it was first filed in 2004. It was scheduled to go to trial in late August, but last week was moved into arbitration. 

Industry experts say the $90 million Vendome is hardly alone. Virtually every residential condo project built in Dallas over the last couple of years is involved or has been involved in litigation, they say. HOA lawsuits, described as "epidemic" in high-growth areas such as California and Las Vegas, are rapidly becoming a major concern in Dallas' emerging condo market, too. 

Plaintiff attorneys who have found success in California and Arizona are moving into Texas, offering free inspections to HOAs, sources say. "It's really becoming a mill, its own industry," one developer representative said. 

"There are 24 projects under construction in Dallas," said Joe Bryant with Dallas-based McLaughlin Brunson Insurance, which provides risk-management services and insurance to architects, engineers and environmental consultants. "A perfect storm is brewing." 

The 4-year-old, 21-story Vendome, modeled after the Hotel de Vendome near the Louvre in Paris, sits at the corner of Lemmon Avenue and Turtle Creek Boulevard in one of the most exclusive areas of Uptown. 

Inside, the Vendome's units are appointed with hardwood floors, marble bathrooms, granite countertops and custom cabinetry. Outside, fountains gurgled the other day while a small army of gardeners worked to coax the ivy to grow, despite the sweltering summer heat. 

The garden is among the homeowners association's complaints. Residents say the landscaping is failing to thrive, due to the use of wrong soils and inefficient drainage systems. They put the cost of developing the formal European gardens they were promised at $750,000. 

Other complaints involve the building's heating, ventilation and air-conditioning systems, drainage issues, soundproofing and waterproofing defects and a poorly designed fountain that often sprays residents at the porte-cochere entrance. 

Both sides agree there are no concerns about the building's structural integrity. 

In early 2004, New York-based Vendome Partners L.P. -- a joint venture between New York's Metropolitan Development Group, which developed the Dallas Vendome, and Lehman Bros. Holdings Inc. -- made some of the requested repairs and gave the HOA $153,000 for others. According to the HOA, the cost to make additional fixes and improvements will run more than $4 million. 

Besides the construction issues, the HOA also is charging Vendome Partners and Dallas Realtor Judy Pittman with deceptive trade practices, saying they were promised a state-of-the-art security system, wrought-iron railing on the roof, a climate-controlled wine cellar and other amenities that were never delivered. 

The HOA is asking for $4 million from Vendome and Oklahoma-based Manhattan Construction Co. and $2 million from Pittman, plus other damages, court costs and attorneys fees. 

Numerous condo owners were contacted for this story; all declined to be interviewed. In a 2004 letter to residents, the HOA asked owners to "exercise the utmost discretion in any conversations they may have regarding the delicate situation," to help "preserve the value of individual properties and the reputation of the building." 
  
Manhattan, which calls the HOA lawsuit frivolous, is no slouch when it comes to condo construction. Besides the Vendome, the company built the $28 million second phase of The Plaza at Turtle Creek and is at work on the Ritz Carlton Hotel & Residences, a 21-story, $200 million development in Uptown. It also was recently selected as general contractor for the new Dallas Cowboys stadium in Arlington. 

Manhattan filed a counterclaim earlier this year, asking for a clarification with regard to warranties, as its contract was with the Vendome developer, not the HOA. 

The HOA took ownership of the Vendome's common areas in October 2003. Representatives say they brought the lawsuit only after being unable to directly resolve issues with Vendome Partners. 

In mid-2004, the HOA hired Deborah Gagliardi to do an independent evaluation of the project. A principal at the locally based Gagliardi Group, she is a registered architect and mechanical professional engineer licensed in the state of Texas. 

According to documents filed with the Dallas County District Court, Gagliardi found 47 issues that needed to be resolved. 

Vendome Partners' attorney, Cynthia Dooley with Dallas-based Brousseau & Associates, said her client has different positions on the various complaints. She declined to provide more specifics, due to the pending litigation. The HOA's attorney also declined to be interviewed, as did Pittman. 

In an affidavit, one HOA board member described a contentious meeting with Vendome Partners' John Conroy. The member said Conroy "vigorously disagreed" with the group's observations and said he would not be "writing any big checks" to resolve the issue. The meeting ended with Conroy vowing to "get on a plane to New York and never return to Texas." 

Carolyn Shamis, one of the top residential Realtors in Dallas, said that's indicative of the problem. "What happens is, as the buildings don't sell out, the developer gets tired of it and things get shoved under the rug and don't get fixed," she said. "They try to stall and get the HOA to pay for things. They're carrying notes and don't want to spend any more money, so they just stop." 

Arbitration regarding the Vendome situation is slated for March 2007. The outcome will be binding only between the HOA and Vendome Partners. Attorneys say that if the HOA gets a judgment against the developer, the developer will go after the construction company, which in turn will go after subcontractors. Fourteen subcontractors already have been brought into the matter; one of them, Americast L.L.C., has filed for Chapter 7 bankruptcy protection. 

>From a risk-management perspective, condominiums differ from apartments or commercial projects because, once the condos are sold, the developer is out of the picture, turning over ownership of all common areas to a homeowner's association, which becomes responsible for maintenance and repairs. Because condos typically are sold before they're built, buyers often make decisions based on renderings and a vision. With multiple owners, there are a lot of expectations. In Texas, if just two or more unit owners are unhappy, HOAs have the right to pursue litigation. 
  
Don Neff, president of Irvine, Calif.-based La Jolla Pacific, a third-party quality assurance services firm, said the Vendome exemplifies the typical HOA lawsuit. His company just opened a Dallas office. "We've been living with this for the last 10 years in California," he said. There, he said, insurance companies left the state, as they were suffering $3 to $4 in settlement losses for every $1 they collected. As a result, the condo-construction market went flat. Carriers have recently returned, this time with new insurance policies that require builders to "bleed with them," Neff said. 

Under the old model, "the plaintiff's attorneys stand on the sidelines and watch the defendants duke it out," he said. "Whoever is left standing, the HOA collects from." 

The new model, called a wrap insurance policy, simplifies things by bringing the insurance company, the developer and all subcontractors under one policy; all are represented by the same attorneys and all are financially responsible for any litigation that may occur. 

Wrap-policy premiums are much higher. Ten to 15 years ago, a $1 million policy might have cost $20,000 or $30,000. The same coverage today will cost $650,000 to $800,000, Neff said. 

Mike Puls, with Dallas-based multifamily and condo consultancy Foley & Puls Inc., said HOA lawsuits already have had a dramatic effect on insurance costs for developers. "And without a good insurance policy, they won't get financing from banks," he said. 

HOA lawsuits will continue to proliferate, he said, because it's difficult to satisfy large groups of people. 

"When you get a number of buyers in the same building, some will get bored and go looking for flaws," he said. "Or if a new building goes up, they'll ask, 'Why isn't ours as good as that one?'" 

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