Denver Condos and the Construction Defects Law

[Mitch H.]

This has been discussed in fragments other places here, but I thought as the buying season gets going (and I see a slew of <$200K condos hit the market) it would be wise to have a contained chat on what peoples opinions are.

Synopsis: There has been legislation in the past that allows HOA's to sue Developers for Construction Defects. Supposedly this has caused a sharp decline in Condo construction in recent years as Developers are wary of the risks. There is a possibility that this legislation will change in the near or medium term future.

As a potential condo buyer in a market where Condos are part of the urban landscape, there are concerns.

Will the law change in favor of condo development?

When will the law change?

When will Condo development ramp back up?

Will it put downward pressure on existing condo prices?

Will it put downward pressure on existing condos in ALL price ranges?

Should I buy a condo right now if I plan on selling in 5 years? 10 years? Buy and Hold?

[Scott Trench]

I love this topic because I hate the builder defect laws.  I think it allows scumbag attorneys to make a killing while at the same time making the Denver market worse for everyone.

It's one thing to legitimately sue over defects and weaknesses in construction to protect condo buyers, but the laws seem to allow for the local scumbaggery to sue over minor defects with such ease and for such large sums that the result is a market heavily skewed away from condo development.   Builders simply fear lawsuits so much that they won't build them... and I believe that's just wrong.

Here is my view as I interpret the situation, in response to your questions:

1) It will be hard for the local laws to skew further against condo development, in my view.  I'd either bet on no change or a change in favor of future development.

2) When the law changes is anyone's guess.

3) Condo development, I believe, has already ramped up.  There are a tremendous number of structures stylizing themselves as apartment complexes.  I don't know the specifics of the conversion process, but the complexes that many of my friends rent all appear very similar to condos.  I would not be surprised at all if the newer buildings, and many of the older ones are strategically positioned to be sold off as condos rapidly, should the local ordinances change.

4) I believe that should the law pass, and should apartment units be sold off as condos, that this will absolutely put downward pressure on existing condo prices (and home prices too...).  This is a good thing for the Denver market.  But it also means that your current condos will likely be competing against nicer, newer, better located structures.  At the very least, that will slow your appreciation potential.

5) As far as ALL price ranges go, I don't know.  I'd imagine that this situation doesn't bode particularly well for buy and hold condo investors over the next 5-10 years though.  If you have a great condo in a great location, you'll probably be fine in the majority of circumstances like you would with any great deal.

The opportunity here (I believe) is for apartment complex builders and owners, and new build construction.