How to get the funds you need to repair or upgrade your older coastal apartment block
Old coastal apartments have a lot going for them. Apart from their great views and proximity to the beach, there’s also something reassuring about the fact they’ve stood tall for decades.
So, naturally, you’d assume they must have good bones, right?
Sadly, the answer is often ‘no’.
Aren’t older coastal buildings high-quality and durable?
Many of our coastal apartment blocks were built between 1930 and 1940. Back then, concrete was expensive, as it had to be shipped in from the UK. So a cheaper lime-based mortar was typically used instead. Unfortunately, though, lime mortar can accelerate brick tie corrosion, leaving the building vulnerable to collapse.
So does this mean you’re out of the woods if your coastal apartment is post-war?
Unfortunately not, as many blocks built in the late 1960s and early 1970s suffer from ‘concrete cancer’. This is when the steel reinforcing within a concrete slab begins to rust, again impacting the building’s structural integrity.
The bad news is your building’s potential structural problems don’t stop there either. Your roof, windows and lintels might need replacing, and there’s the possibility of extensive fire, waterproofing or electrical upgrades to bring your block up to code.
None of which comes cheap. It’s not unusual for repairs or building upgrades to cost more than $1 million.
So what do you do when there isn’t enough money in your building’s sinking fund to cover these costs?
If we can’t afford to fix our property, does that mean we’ll have to sell?
Some owners are forced to sell their apartments if they can’t afford to pay for their share of the repairs.
Thankfully, there’s another solution to the sinking fund shortfall dilemma. You can let the building pay for itself through airspace development.
This is when you take the unused roof space in a strata complex and sell it to a developer. This can generate up to $2 million in additional funds for the owners. These funds can then be used to repair and upgrade the building – with any leftover distributed to owners as per their unit entitlement.
This raises an obvious objection.
Surely it would be easier and more profitable for the owners to manage the development themselves, rather than involving a third party, right?
Wouldn’t it be more profitable to do our own property development?
Property development is something best left to the professionals. That's because it typically involves legal and insurance risk. Professional developers are set up to manage that risk, but amateur owner-developers aren’t.
Property development is also complicated. Professional developers know how to do it properly, but amateur owner-developers don’t – increasing the likelihood of costly mistakes.
All this is made harder by the very nature of strata development.
It’s very hard for a group of owners to agree on anything, let alone something as big as developing the airspace in their building. Competing financial interests, personality clashes and building politics all come into play, typically leading to a lack of decisions and direction.
But if an outside developer comes in, they can take control of the project. So the owners won’t need to debate every single little detail – except whether to say ‘yes’ or ‘no’ to the developer’s offer.
Lastly, many owners are asset-rich but cash-poor. They own valuable real estate but don’t have the significant amounts of money required to develop the airspace. But if a developer pays the owners for the right to develop the airspace, that problem is solved.
Isn’t it just the top-floor owners who benefit from airspace development?
One of the big debates that typically occurs when owners try to develop the airspace themselves is divvying up the money.
Some top-floor owners believe they should be entitled to more money than others. This can confuse or antagonise the other owners, potentially leading to the project being scrapped.
But when an outside developer comes in, they make an offer based solely on objective criteria. Each owner’s share of the profits would be identical to the share of the property they own – so everyone benefits. This makes it easier for owners to reach a decision.
How do we identify a developer with a good track record?
If you live in NSW, you’re in luck.
The NSW government has worked with Equifax to develop a rating system for new building projects, known as the Independent Construction Industry Rating Tool (iCIRT).
The tool is designed to help consumers find reputable developers and construction professionals. It uses a five-star system to rate builders and developers on their apartment builds. These must meet the minimum benchmark average of three out of five stars to be deemed “trustworthy".
Lacking the funds to pay for your building’s major structural repairs or upgrades? I can help you capitalise on your airspace. Call Warren Livesey on 0415 254 420 or email email@example.com to get started.