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Has condo development hit a wall in Denver?

Has condo development hit a wall in Denver?
Anthony Camera

In Denver, condominiums are an endangered species.

Their habitat — the empty lots and abandoned widget factories that serve as fertile ground for urban infill projects — has been overrun with for-rent apartments, a breed of housing that looks similar to condos but attracts a different sort of inhabitant to the city's jungle.

See also: Ten Denver apartment projects under construction

Attorney Doug Benson represented condo owners at The Point, where water damage has rendered two units uninhabitable.
Anthony Camera
Attorney Doug Benson represented condo owners at The Point, where water damage has rendered two units uninhabitable.
Scott Sullan, the king of construction-defect claims, blames the economy for the lack of condo projects.
Anthony Camera
Scott Sullan, the king of construction-defect claims, blames the economy for the lack of condo projects.

For instance, during 2007, at a time when residential construction was on the decline nationwide, there were 112 apartment units and 870 condo units built in the city's central neighborhoods, according to the Downtown Denver Partnership. As of this July, that ratio had been reversed in a major way. A whopping 7,148 apartments were planned or under construction, the organization says, while the number of condos being built was a meager 145 units.

And that lopsidedness isn't just a Denver phenomenon. Mayors and civic leaders throughout the metro area are concerned, not because apartment-dwellers are uncivilized brutes, they insist, but because having too many short-term renters and too few well-rooted owners threatens to upset the delicate balance that makes for a thriving city.

"All I'm advocating for is a variety," says Lakewood mayor Bob Murphy.

The primary predator? In his view, and the view of many others, the development of new condos is being stifled by construction-defect lawsuits.

Developers and builders report that they won't build new condo projects because of the high likelihood that they'll later be sued by the homeowners' association for shoddy construction, a claim they say is often exaggerated. Regardless of where the truth lies, most lawsuits end up settling for millions of dollars. That kind of liability has caused a majority of the companies who previously insured Colorado builders to bow out of the condo game altogether, local agents say, making the outlook for new construction even more bleak.

There's a saying among those who blame the condo decline on these types of lawsuits — and on the tenacious lawyers who file them on behalf of homeowners: "There are two types of condo projects: those that have been sued and those that will be sued."

"We have a very big target on our backs," says Dan Nickless, the Denver division president of Ryland Homes, which builds condos in most of its markets but not in Colorado.

But not everyone agrees — especially the lawyers for the homeowners, who believe there are politics at play. "They've come up with this bogus argument that they haven't built any condos since 2008 because of us," says attorney Scott Sullan, the undisputed king of construction-defect claims. The real reason why no one was building condos, he argues, was the recession. "The strategy now is to use that downturn and the fact that condos weren't built as an excuse to provide immunity to builders to build poor products and walk away from them."

A state bill introduced during this past legislative session that would have provided some legal protections to developers wanting to build condos near light-rail stations was killed by lawmakers after homeowners showed up and offered testimony about their leaking windows, sloping floors and freezing bedrooms. A massive lawsuit, while no fun for anyone involved, is often the only way to force builders to pay for necessary repairs, the homeowners said.

The builders, developers, mayors and economic-development officials behind the failed bill haven't given up, however. They've commissioned a $40,000 study and have been meeting to discuss ways to tackle the issue anew when next year's legislative session starts in January. It's a complicated proposition, especially since the two sides disagree on most everything.

"It's no secret that woven through this entire topic is conflict and litigation and lawyers and money," Senator Mark Scheffel, the sponsor of last year's bill, said during the debate.

What's harder to figure out is who the villains are.

***********

There are plenty of horror stories on both sides. Take what happened at The Point, a mixed-use urban-renewal project completed in 2003 in the historically African-American neighborhood of Five Points. The Point consists of 35 affordable rental units and 33 condo units, all of which sit above retail space occupied by a coffee shop, Coffee at The Point, and the Crossroads Theater.

While the $13 million development stands out as a success among the empty storefronts that dot the neighborhood, homeowners say the construction does anything but.

"When I purchased my brand-new condo in 2004, it looked great," resident Jonathan Harris testified before lawmakers in April, "until the leaks started."

On a recent afternoon, attorneys Doug Benson and Heidi Storz lead a tour of The Point's problems, most of which can be traced back to improper waterproofing, they say. At The Point, it's caused damage to the ground-level garage, where chunks of the ceiling have rotted and flaked off, and the upper-level concrete patio, which has crumbled due to the water that pools on the surface and continually freezes and thaws in the colder months.

Worst of all, the water has seeped into the units themselves, two of which are now uninhabitable. The front doors of these units are locked, and the rooms with the worst mold damage are sealed off by zippered plastic doors that give them the feel of a serious biohazard. "You can see the mold actually eating the wood away," Benson says, pointing to an especially egregious corner where the drywall has been removed to show the rotted wood underneath.

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39 comments
BTBT62
BTBT62

Sorry you need to read from bottom to top for the comment to make sense.

BTBT62
BTBT62

An additional economic perspective… maybe there is just less demand for brand new multi-family construction.The article doesn’t really address what consumers want in this market.There may be a perspective worth considering, in that after the last decade and an half of construction and defect contention, consumers don’t want to risk buying new shoddy products.Colorado’s defect atmosphere has demonstrated or alluded to a stigma about multi-family builders and their ability to build quality products.Who wants to “invest” in housing that has a higher than not percentage of being defective and costing one a lot of time, money and headache.I don’t.

BTBT62
BTBT62

My opinion, the current lack of ownership condo projects has less to do with construction defect, as it has to do with the economy’s supply and demand along with the timeline to initiate, fund and start a project.Right now all the “apartment” projects were started at or about the downturn and through the “recovery”.Statistics demonstrate that during down economic times, the rental demand jumps and the demand for ownership housing drops.Because rental demand has jumped, there is a need for more rentals because the supply is low.There were less multi-family rental starts in 2011, down almost 100,000 from the 10 year avg.So the supply is low, despite increase demand.From 2011 to projected 2015, rental demand is solid at an increase of 1.7 million units, whereas multifamily ownership housing is still dipping downside 1.4% last year to project 2015.If the economy rebounds, multi- family homeownership is project to be at the 1999-2000 level in 2015.So essentially, there is greater demand for rental property.(All stats either from multi-family section of HUD or multi-family section of Freddie Mac)

BTBT62
BTBT62

I do not agree with Tom Clark's assessment of "Fewer condos means fewer young couples who will be able to build wealth by buying a condo and then selling it for a profit once they have a kid and upgrade to a single-family home."You can't sell a defective home for a profit Tom.As a matter of fact, if the building is defective, the homeowners can’t re-fi or sell the condo and usually the homeowner loses money. So there should be a huge invested interest to ensure that ownership condo are built correctly.

And really, construction defects causing fewer condos causes poorer academic performance for children?Tom, we shouldn't settle for just throwing up condos because that's what was promised, we should strive to provide a quality condo units for ownership that will create value and return on investment.It’s hard to realize profit on a defective home.

BTBT62
BTBT62

For homeowners and HOAs, the question comes down to, who has the ability to protect themselves from defect issues.The builders absolutely can, not the homeowners.The homeowners aren't standing on-site for 24 hours a day ensuring construction is completed correctly and nor do they have the ability to fix an issue like the builder does. If the project was built right in the first instance and extra time was spent on carefully paying attention to details, the builder can limit its own risk.Which leads to the question addressed in the article, would someone pay an extra $500 to have the unit inspected during construction?Given even a higher estimate, I would have paid an extra $3,000.00 for my unit and given the builder as much extra time as it needed to ensure the job was done right... absolutely.You are usually talking less than 1% extra on a condo price. Given the headaches of the defects and what the process brings, it is an extremely small price to pay.

BTBT62
BTBT62

And to complain about expansion of the defects at that point seems to be capitulating to blaming someone else for problems one created or chose in the first instance not to properly address.That one window that leaked turned in a lot of windows, simply because the builder didn’t fix the one window issue when it was contacted in the first place.Another problem I experienced is that when builder’s treat homeowner’s like they are dumb and the builder emphatically espouses that the band-aid fix is sufficient, it does not lend to great relations for the defect issues when the band-aid fails (which we know it will b/c band-aids fall off).It lends to entrenchment and dissent. Lending to a potential solution for the builder, if there is an actual and serious warranty program that included a high level customer service piece, a builder could possibly end run many of these defect issues and get outside the SOR.

BTBT62
BTBT62

From an HOA's perspective there is usually no choice but to go through the defect suit process.Any claim about warranty issue... when you call the builder and tell them you have problems, they usually send the lowest guy on the totem pole off another job with a caulk gun (b/c he is really non-essential to the other job, which should help one conclude the quality of work that is going to be performed).If the fix involves anything beyond that, the developer/builder usually ducks its head into the sand like an ostrich.So after no response from the builder/developer or offer to repair (my experience, didn't even get an offer of repair or Plan B proposal), the HOA has no choice because the issues are too big for the homeowners to come out of pocket to pay for the repairs.Even if the homeowners are not made completely whole, being 60% of the way there is better than being nowhere near at all.

rocky
rocky

A big problem is that these attornies partner up with construction defect companies such as reconstruction experts.  Reconstruction Experts work the property management companies angle looking for anything that could potetentially be deemed as a defect.  Once they see that they may have a case they call in Sullen or Benson to build their case.  So in a sense the defect attornies have these construction companies in their back pocket working for them.  Once the case is settled, the HOA typically has a sense of trust in these defect companies because they wrote the cost of repair estimates for Sullen, who got them their money.  So in turn the construction company has a leg up on competition to complete the project for x amount of dollars after they settled.  You tend to see the same companies chasing these defects with the attornies.  For the attornies its a win win.  They get the case and they have defect specialist out their looking for their next  case.  For the construction company, its a win win.  They get the work to get the property functioning during the litigation.  As well as the reconstruction.

bill772
bill772

I'm honestly surprised that the legal profession and the insurance community of risk managers have not created a proactive remedy for Construction Defect claims coming from condo owners.  In the design and construction industry, we limit our risks by assigning responsibility to the various parties within our agreements and Construction Documents.  The developer is the person who is responsible to create the HOA by-laws, CC&R's and purchase contracts.  The fact that they have not used these agreements and rules documents to prescribe a warranty remedy puzzles me.  Developers could put in place a fully staffed warranty service to quickly respond to any one homeowner's complaint without "repairing every window in the building" if they didn't leak.  The responsive and focused warranty team would be far more effective than the extrapolation method of repairs created by the HOA's attorneys and experts who are exclaiming that if they only get "one bite at the apple," they're going to make sure that everything is included in that bite.  No wonder it's such expensive litigation and the attorneys are making so much money on their contingency engagements. By the time the settlement check arrives and the attorneys extract their percentage fee, there's not enough money to fix all the issues that were claimed in the complaint. 

This is not that complicated.  When you consider that the basis for filing a suit against the developer is based upon the CC&R's and the approved set of plans for the project, why isn't anyone making sure that those documents combined with the purchase contract provide a non-litigation remedy?  In the long run, it might be a lot less expensive that some of the high cost, low-rated insurance that is out there now.  There needs to be a serious workshop to create a new set of rules that has some common-sense solutions built into the agreements and rules.  The mayors should convene this meeting along with the various parties and their counsel and build some sensible policy. (bill@wfdexter.com)

bauerku
bauerku

Thanks for writing this expose on construction in Denver.  You discuss the problem that no-condo building is creating with taxes and TOD.  Another issue is affordable housing.  Denver's inclusionary housing ordinance only applies to for sale units NOT rentals.  With no protection for affordable housing, Denverites are now facing one of the highest rent burdens in the country.  

WillieStortz
WillieStortz

Is there anything in this country that lawyers haven't destroyed? 


We need laws that limit lawyers fees in class action lawsuits. So that true victims aren't once again exploited by these bottom feeding lawyers. 


I'm glad that Westword posted the pictures of these two low life scumbags. Everyone should know what they opportunistic weasels look like.

nopenope
nopenope

"Fewer condos means fewer young couples who will be able to build wealth by buying a condo and then selling it for a profit once they have a kid and upgrade to a single-family home."

 This statement is flawed.  It assumes appreciation (profit) on a condo purchase.  Anyone holding a condo right now (particularly if you purchase at the top of the market) knows that it has most likely not appreciated in value.  In all likelihood, it has lost a significant amount of value, and/or of the purchase price.

So instead of a step up property, condo ownership has instead become a financial sinkhole.

patricia.calhoun
patricia.calhoun moderator topcommentereditor

i'd like to publish some of these comments in our print letters to the editor seciton -- ideally with the author's full name. If that's okay, e-mail me at patricia.calhoun@westword.com.

Gilbilly
Gilbilly

Most modern condo's and apartments are built like shit by the most unskilled of construction workers with the crappiest of materials all in an effort to save a dollar.  Maybe if they built decent developments and lowered their profit margins a little they wouldn't get sued so regularly.

marc_bayes
marc_bayes

I don't think I've seen one condo complex that is not or has not been in litigation with builders. Not to mention that nearly all condo units in the Denver Metro area will no longer go FHA because of owner occupant versus investor ratios. There are a few that will but for the majority condo's are now cash or conventional loans only. 

FHA made it even harder with removing "Kiddie-Condo" loans at the start of 2013 so parents can no longer use an FHA loan to purchase their kids a home that they will not be living in. Condo's are a mess.

 @CONATIVE said it best: "The solution is a combination of more accountability on the builders side to build a better product and less power on the attorneys side for exploiting meager claims".

CONATIVE
CONATIVE

The solution is a combination of more accountability on the builders side to build a better product and less power on the attorneys side to exploit meager claims. 

These attorneys are like ambulance chasers. They pick a project that has not been sued, purchase a unit for $100-$200k, and strip the unit to its bones looking for defects. 

More often than not they are the ones knocking on doors, trying to get as many homeowners to drink their defect Kool-Aid so they can have enough support for a class action suit. 

Hopefully the bill will be tweaked for the next session and they will get it right. Otherwise, a lot of tax-payer money will be wasted since the Fastracks projects will not yield its original intended return on investment. 


fishingblues
fishingblues topcommenter

Scott Sullan is scum. He has made a mega fortune suing home builders.  Some of the problems are real, but most are not.  Sullan doesn't care about anything except lining his pockets.  Think about it.  There are thousands of components in a home.  I could find at least ten things wrong with every home ever built.  Most are not serious.  Do you want to know one of the biggest reason the cost of housing is so high?  Look no farther than racketeers like Sullan and his ilk.    (I am not a home builder and have no dog in the fight.)   

Meghan Smith
Meghan Smith

I have one someone could take off my hands

Ben Beeby
Ben Beeby

Its the condo market nationwide. There are also a lot of limitations on financing on Condos. They cannot have a lawsuit, they have to be more than 50% owner occupied etc. Additionally High Rise Condos are almost impossible to finance. If Denver wants condos, they are going to need to help finance people, cause the banks dont have any appetite for more foreclosed condos.

rocky
rocky

@BTBT62

I do agree with you, to an extent.  60% isn't much after years of litigation where the CD issues get worse.  However, if you fix the problem sometimes the work get's taken out of the litigation because it is considered fixed.  A company can provide "temporary repairs"  but the HOA still has to pay for those repairs.  These day's HOA's typically get 1/3 of what they need to fix their problems.  So say you get have 1 million in repairs needed.  HOA get's a 3rd of that. $300k? Then take out the CD attornies 20%.  Not much left over to fix the repairs needed.  This is also not taking into account the issues getting worse during the few years of litigation.

BTBT62
BTBT62

Yes, but RE give a warranty on its product that extends at least as far as the defect period.  This is way more than what the original contractor gave and the engineering is followed to a T.  That's why RE doesn't have a reputaiton of being sued for defective work, because RE follows the proper protical without cutting corners. 

fishingblues
fishingblues topcommenter

@nopenope    Wow, what a freaking pessimist.  The housing market, whether condo or single family, goes up and down just as the stock market does. We have a cyclical economy.  Over the long haul the stock market and housing both go up.  It is a statistical fact.  Look it up and quit with the hysteria.  If you are dumb enough to buy at the top and sell at the bottom, you deserve what you get.  

patricia.calhoun
patricia.calhoun moderator topcommentereditor

make that  letters to the editor "section."

doug400
doug400

@Gilbilly My buddy Kieth was a sub for many of the big builders and was asked 5 years ago to cut 15% from his subcontract.  My buddy sharpened his pencil and made the cuts and told me that he was only cashflowing to keep his crews together, but was not making money.  When he went to sign the contracts he was told to cut another 15%.  Instead, he asked me to help him dissolve his company...someone else DID sign those contracts though...it's no wonder there are issues...

nopenope
nopenope

@Gilbilly This is true of most single family homes being built now as well.

doug400
doug400

@CONATIVE This is an urban myth that has no basis in reality.  A rumor that has taken on a life of its own, but is nevertheless completely and utterly false.  Channel 9's Adam Schreger asked me about that rumor first in 2000 when the rumors first started.  The rumor was specifically directed at me.  I even had a local attorney testify to exactly what CONATIVE posted in an Arbitration about me specifically. 

Murrow
Murrow

Thanks for that note at the end. You sound completely unbiased...

marc_bayes
marc_bayes

@Meghan Smith Would love to help you out if you're looking at selling.

rocky
rocky

@BTBT62

From my understanding RE provides a one year warranty unless otherwise worked out.  Also, I know property managers who have used RE on CD cases that have had plenty of issues.  Many considered secondary litigation against RE but were burnt so badly during the first litigation, they chose not too.  Litigation can be extremly trying on homeowners and HOA's.  With HOA's typically only recieving a 3rd of what they need, it's not always in the best interest to go to litigation not only once but a second time.  RE doesn't do new construction for a reason.  If they did, I assure you they would have claims.

fishingblues
fishingblues topcommenter

@doug400   Wow!  So what allegedly happened to your "buddy Keith" is indicative of the entire industry?  Is that what you want people to believe you believe?  

fishingblues
fishingblues topcommenter

@nopenope @Gilbilly   Is it?  How would you know?  You have shown yourself to be highly prejudiced, hysterical and generally full of crap.   

doug400
doug400

After I received the transcript, the attorney called me with the arbiter and all of the other attorneys on the line and apologized.  I have never owned a multi-family residential unit and have never done anything close to what you described.

In addition, understand that we handle these cases on a contingent fee basis.  We do not take marginal or "meager" claims as it would not make sense. 

fishingblues
fishingblues topcommenter

@Murrow   Thanks for your enlightened contribution Ed.  

I believe everyone should disclose their position, so that people can view it accordingly.

Since you don't appear too bright, I'll let you in on a secret.  NO ONE is completely unbiased.  Hope that helps. 

fishingblues
fishingblues topcommenter

@Murrow   "loser pays" is in effect (in watered down fashion) in only Alaska and Texas.

Contingent representation makes it too easy to sue someone.  We have become a litigious society.  Too many think it is the way to a fast buck.  I would concur that some form of this may be necessary.  However, severe restrictions in attorney compensation and "reasonable" awards need to be placed.    

fishingblues
fishingblues topcommenter

@nopenope @fishingblues @Murrow I have purchased several, in fact.  I have not had any problem whatsoever.  My experiences have been mostly positive.  The key is  the superintendent.  All builders use essentially the same materials and subs.  Proper supervision is what yields a good house.  

Murrow
Murrow

@fishingblues You're a feisty one.  

1.  It's my understanding that recoverable litigation fees & costs is a long standing practice.  However, sometimes the "winner" is not always clear cut.  In construction defect there are a number of issues, where in some areas damages may be awarded and others not.

2.  Contingency representation is important for enabling adequate representation and access to the legal system.  In this case individual homeowners or HOA's rarely have the resources to fight a protracted legal battle against a builder/corporation on an hourly basis.

3. I'm sure there is disagreement on what "realistic" means, but fair enough.

nopenope
nopenope

@fishingblues @Murrow Have you ever bought a house or condo at construction?  I have, and it has been a nightmare of shoddy, substandard work.  You can have the longest punch list in the world, but getting a builder to address actually address anything is next to impossible.  Especially if you have a job and must try to chase them down, get appts, get them to SHOW UP to said appts, etc.  They build as cheaply as possible and then just hope that they can avoid the lawsuits and do nothing to cure as well.

fishingblues
fishingblues topcommenter

@Murrow   Golly, aren't you sensitive!  You must be a liberal.  I don't imagine your snide comment to me {"Thanks for that note at the end. You sound completely unbiased..."} would constitute 'trolling' in your unbiased mind?  So now you want to pretend like you are sensible and willing to discuss rationally?  

I'm not sure we will ever rid the earth of the parasitic, opportunistic, greedy slime balls that ruin the legal profession.    However, since you asked ---- considerations for tort reform:

1.  If initiating party loses, they and their attorney pay costs of opposing party.

2.  Serious review and possible elimination of 'contingency' practices.

3.  Realistic cap on damage awards including the elimination of punitive and other non-economic damage. 

Murrow
Murrow

@fishingblues Oh thank you! Your personal insults and diatribe really contribute to the conversation.  I know it's easy to troll online comments and not everyone has the time to write a novel about their disdain for one man, but your position is lacking some context.  Since you're not a builder, what has led you to such visceral hate?  Or better yet how about opining on what kind of tort reform you would like to see.  

No one likes litigation but there has to be a way to promote development while also protecting homeowners from shoddy building.  This is a complex issue, but one of the big problems is it often takes a long time for serious damage from defects to show itself, and not all builders are equally responsive to repairing problems (or even around years down the road).  In the end I think it's better to err on the side of protecting individuals, but I hope that any reform that comes through will help limit the length and outsized costs of these lawsuits.

 
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