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.
City councilwoman Robin Kniech says the two sides need to sit down together to hash out solutions.
Anthony Camera
City councilwoman Robin Kniech says the two sides need to sit down together to hash out solutions.

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.

In 2008, The Point's HOA contacted Benson's firm, which is one of the so-called "big three" in the Denver area that focus on construction-defect litigation. After unsuccessfully trying to work with the general contractor — and, more important, the general contractor's insurance company — to resolve the issues without resorting to legal action, the firm filed a lawsuit on behalf of the HOA in 2011. The case is set for trial in Denver District Court in October.

A little boy in a teddy-bear T-shirt who's been watching the attorneys move from abandoned unit to abandoned unit approaches them after they lock the last door. "I want you guys to fix this house and put my friends back in that house so I can see them again," he says.

"That's the goal," Benson tells him.

"I always find it interesting when builders blame us for [them] not building," Benson says later when reflecting on the situation. "To some extent, what they're saying is true. But it's not us who made that problem. All we're doing is showing them what they did wrong."

The people telling the horror stories on the other side have fewer teddy-bear T-shirts. "The home builders walk in, I walk in, and of course we're those grubby capitalists," says Tom Clark, the CEO of the Metro Denver Economic Development Corporation and the executive vice president of the Denver Metro Chamber of Commerce. "And the trial lawyers bring in somebody who genuinely got screwed."

But Clark, who testified for the bill aimed at encouraging condo construction around transit, and others say that if construction-defect lawsuits are allowed to continue to run rampant and stifle condo development, even more people will get screwed.

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. It also means less-stable neighborhoods, which have been linked to poorer academic performance for children. Fewer condos is also bad news for empty-nesters who want to downsize but don't want to rent. And the environment is out of luck, too; if people can't buy condos in urban centers, the argument goes, they'll look to houses in far-flung neighborhoods, creating more sprawl and more traffic.

One of the pro-condo camp's most persuasive arguments has to do with the impact on FasTracks, the multi-billion-dollar, seven-county transit expansion project that voters elected to support with a sales-tax increase in 2004. "If we don't fix this problem now on the front end, we're going to have nothing but apartments around transit," Clark says. That's not what his organization, the largest financial contributor to the FasTracks campaign, promised voters. What it promised was vibrant mini-cities built around light-rail stations, featuring a diversity of housing options, people, shops and restaurants that would resemble what healthy downtowns used to look like.

"We are at risk of pouring a portion of this multi-billion-dollar FasTracks investment down the drain if we can't develop this like we've all envisioned it," says Lakewood mayor Murphy, who is chairman of the Metro Mayors Caucus's FasTracks Task Force.

He and the mayors of other cities FasTracks will expand into say the interest in building multi-family housing around transit is returning, but nearly every proposal is for apartments.

"I've gone to developers and said, 'Could you bring us some for-sale in addition to rental?'" says Arvada mayor Marc Williams. "And they're afraid to do that right now."

"It really becomes an issue of, do we feel comfortable in projects that have that dangling sword over them — this potential construction-defect issue? And for me and for many developers, the answer is no," says David Zucker, the director of development for Zócalo Community Development, the firm behind the popular RiverClay condos in Jefferson Park.

Zócalo is currently developing one of the new high-rises around Denver Union Station, the 132-year-old downtown train station that's being transformed into a multi-modal hub with eight commuter-rail tracks, including one to Denver International Airport, as part of the FasTracks project. Zócalo's high-rise, called Cadence, will comprise 219 luxury apartments. It's one of several such developments ringing Union Station; according to the Downtown Denver Partnership, a total of 2,725 apartment units are either planned or under construction there, though the organization stresses that it's unlikely that all of the planned units will be built.

The number of condos under construction is zero.

***********

So how did the condo-development industry end up in this mess? Some point to state laws.

When Colorado was founded in 1876, the law of the land was "buyer beware," says Bruce Likoff, an attorney who has researched the law and who sides with the mayors in thinking that construction-defect lawsuits have gotten out of hand. In the early 1960s, however, the Colorado Supreme Court issued a pair of decisions that set a different precedent: Builders were now required to guarantee that a home was constructed to code and suitable for habitation.

"That was, frankly, the beginning of the problem, but the problem didn't explode right away," Likoff says. The concept of suing a builder for shabby construction was born in California, he says, and imported here in the early '90s. The first high-profile cases involved single-family homes built on so-called expansive soils in suburbs like Highlands Ranch. These soils, which are common in Colorado, expand when wet, causing foundations and driveways to crack.

Sullan, who worked as a carpenter while he was in law school, quickly established himself as an expansive-soils expert. In 1996, he won a class-action lawsuit on behalf of 957 homeowners whose basements were built on concrete slabs instead of wood floors, which made the houses susceptible to damage from swelling soils. The case earned him a front-page story in the Rocky Mountain News and cemented his reputation as "the legal bane of homebuilders," a nickname that the Denver Post bestowed upon him years later.

Sullan is so legendary that he's been memorialized in a locally published novel: The predatory lawyer in a legal thriller about construction-defect lawsuits written by Boulder builder-cum-author Michael Ruddy is conspicuously named Steve Sanderson.

Other attorneys took note of Sullan's success, Likoff says. "Ultimately, there were settlements in those cases, and they were really big numbers. Lawyers said, 'Wow, there's some big money to be made here.'" But some questioned whether that money was being made ethically. Even though class-action lawsuits can involve thousands of homeowners, only a small percentage of the homes in these cases had actual damage, Likoff says.

Furthermore, attorneys like Sullan were going after triple damages. While that was allowed under Colorado's consumer-protection laws at that time, builders' insurance policies often don't cover anything above the cost to repair the actual defects, leaving builders on the hook for the rest — a cost they were forced to pass on to consumers.

Builders appealed to the state legislature for help. In 1999, they successfully lobbied for a law that limited the instances in which triple damages could be awarded to cases in which a builder acted in bad faith and built a poorly constructed home on purpose. In 2001, they returned to the legislature to pass a bill called the Construction Defect Action Reform Act, or CDARA.

Surprisingly, Sullan and other plaintiff's attorneys supported that bill, which, in their view, didn't erode homeowners' rights. The main thing it did was require that homeowners provide builders and subcontractors with a list of alleged defects within sixty days of filing a lawsuit or entering into arbitration. Two years later, in 2003, the builders went back to the Capitol to lobby for a law dubbed CDARA II. That law did several things, including set up a "notice of claim" process. The process requires homeowners to send builders the list of alleged defects before filing a lawsuit and then allow the builders to inspect the damage and tender an offer to fix it. The homeowners can choose to reject that offer and sue the builder anyway, but the law's goal is to avoid costly litigation. CDARA II also limited the amount of money homeowners could be awarded for consumer-protection violations and attorneys' fees to $250,000 and eliminated the ability to file the huge class-action lawsuits that Sullan had become famous for.

After the law passed, the cover of the trade magazine published by the Colorado Association of Home Builders featured an illustration of a superhero standing over a vanquished pointy-eared foe. "I'm pretty sure that's supposed to be me," Sullan says.

But in 2007, the pendulum swung back the other way when lawmakers passed the Homeowner Protection Act. It was aimed at stopping builders from including clauses in their contracts with homeowners that required them to waive some of their rights to recover damages. According to Sullan, those contracts were a sneaky way for builders to swindle homeowners. But Likoff saw them differently. Instead of offering a general warranty, he says, most builders provided a warranty that included specific terms: if such-and-such breaks within a certain number of years, we'll replace it. Those warranties were a way for builders to manage their risk, he says, and the Homeowner Protection Act made them void.

In the end, each side thinks Colorado law favors the other.

"The builders wrote the law in 2003!" Sullan exclaims. "Do you think they'd write a law skewed in favor of homeowners?" He and other homeowners' attorneys say that placing a limit on the amount of damages homeowners can collect ensures that after they pay their lawyers (most of whom take these lawsuits on a contingency basis and then collect a third of the money awarded to homeowners), they won't have enough money left to make all of the repairs.

Plus, he says, Colorado law only gives homeowners six years to sue the person who built their home (although it may be extended up to eight years if the defect is discovered in the fifth or sixth year). It's one of the shortest windows of time — known as a statute of repose — in the country, according to a chart compiled by Sullan's law firm.

But those who represent builders and developers say the law is stacked against them, especially when it comes to condo projects. "The law has always favored homeowners," says defense attorney Brad Ramming. "Homeowners are people. They're voters."

After CDARA II outlawed class-action lawsuits involving single-family homes, defense attorneys say, the other side turned their attention toward condo lawsuits, which were a lucrative alternative, partly because an HOA board could vote to sue on behalf of all of the owners — and the more people potentially wronged, the higher the potential payday. Condo projects are also much bigger and more complicated to build than single-family homes, making the chances that they'd suffer from construction defects more likely.

Even though CDARA II set up a "notice of claim" process to encourage builders and homeowners to resolve their issues outside of court, builders' attorneys say the process rarely works the way it should. "There's not a lot that the builder can do to force the owner to make repairs if the owner elects not to go down that route," says attorney Ivan Sarkissian.

And even if the builder and the homeowner want to work it out, the builder's insurance company often refuses to pony up the money for the repairs without a court order or settlement agreement. "Insurance companies don't want to pay," says Dennis Polk, an attorney who represents construction professionals in disputes with their own insurance companies. "They want to argue over what are covered damages and what aren't covered damages."

Perhaps the only winners in the entire deal are the attorneys who get paid to litigate these claims. HOAs don't like to be involved in lawsuits, because it's nearly impossible for owners to refinance or sell their units while litigation is pending, which essentially traps them in their defective homes. "You can't sell your unit because people will say, 'Oh, construction defect. Toxic property,'" says Larry Healy, the general manager of the Beauvallon, a luxury condo complex in the Golden Triangle. The Beauvallon sued its developer in 2007, settled the lawsuit in 2009 and then underwent two years of intrusive repairs that included wrapping the buildings in a sheath residents dubbed "the condominium condom" while workers waterproofed the stucco.

"But if you don't file the suit," Healy adds, "how are you going to get the repairs made?"

Builders and developers don't like these lawsuits, either. They allege that homeowners' attorneys exaggerate the number and type of defects in any given project. "If you've got one window that leaks, they extrapolate and say, 'All the windows could leak at some time,'" says Amie Mayhew, the CEO of the Colorado Association of Homebuilders. "If you've got one crack in the sidewalk, their scenario is that all of the sidewalks could be faulty."

Builders' attorneys also say that the experts hired by homeowners' attorneys to estimate the cost to repair damages inflate their numbers because they figure that the settlement is likely to be somewhere between their estimate and the builder's estimate. Meanwhile, homeowners' attorneys say they've tried to hire neutral experts in order to avoid costly lawsuits altogether, only to be shut down by the builders. In any event, the amount of the settlements matters; builders fear that the more multi-million-dollar checks the insurance companies are forced to cut, the harder it will be to get insurance to build these projects at all.

***********

In 2008, there were more than twenty insurance carriers willing to cover condo projects in Colorado, says Gary Frisch, an insurance agent with the Stailey Insurance Corporation of Denver. By 2011, that number had dwindled to five. "Typically, it's been the construction-defects litigation that's caused a lot of problems," Frisch says. Insurance companies "can't price the product correctly to be aggressive in this market."

And the type of insurance coverage offered has changed, too. The household-name companies got out of the housing game about fifteen years ago, when single-family construction-defect lawsuits were in vogue, says insurance broker Clayton Sharkey, who is the director of construction practice for IMA in Denver. So builders and developers had to seek insurance from lesser-known companies that handle higher risk. While those policies came with a higher price tag, builders were still able to buy annual renewable policies, which is the type of insurance traditionally carried by construction professionals.

But starting a few years ago, that market began to dry up as well. Now, Sharkey says, more and more developers are having to buy so-called wrap-up policies, which cover every person working on a project for however long it takes to complete it, plus the statute of repose. Wrap-up policies are more expensive up front, however, and they come with extra costs. For instance, a builder will have to pay someone up to $10,000 to enroll all of the subcontractors in the policy. And because the insurance companies are wary of lawsuits, many now require builders to pay to have their building plans reviewed and to have the project regularly inspected during the building process. The inspections alone can add $500 to the cost of each unit. "It starts adding up to be a pretty big number," Sharkey says, "and that cost gets passed on to the consumer."

The rising cost of insurance is a big reason why builders and developers are steering clear of condos. "Every year when I renew my insurance, the number-one question I get asked is, 'Are you building multi-family?'" says Scott Hente, the co-owner of Robert Scott General Contracting in Colorado Springs. Next year, that answer could be no. Hente says his company is finishing up its last multi-family project and is not looking to start another one.

Several builders who testified before the Senate Judiciary Committee in April on the bill aimed at encouraging condo construction around light rail reported the same thing.

"We have always built townhomes," Standard Pacific Homes senior vice president Rip Reid said. "We will close our last townhome unit this quarter, and we have been instructed by our corporate offices not to invest any more capital into multi-family lots."

"We end up getting sued on virtually every multi-family community that we build," Chetter Latcham, president of Shea Homes Colorado, said in his testimony. "We used to just say that we knew it was part of the process and we'd put costs in to account for it. But now our insurance costs in the last decade have grown tenfold." That has caused Shea Homes to move away from building condos, he said. In 2006, condos were about half of the company's business, Latcham testified. "Today, it's eighteen [percent]," he added. "In two years, it will be zero."

"Why have there been, in your opinion, so many lawsuits?" Senator Lucia Guzman asked him.

Because they're money-makers for attorneys, Latcham answered.

"So are you saying, then, that in most cases, there really is not a problem with the construction?" Guzman asked.

"There are problems routinely in the construction process, and I think if you ask the builders, what we would like is the right to remedy," Latcham said. "We're happy to fix things that are our problem. The issue becomes when we get the attorneys and insurance companies involved, then the builders are no longer allowed to fix the problem, and so you end up with these very large settlements that then drive up the cost of construction and the cost of insurance."

The right to remedy is one of the things that the bill, known as Senate Bill 52, would have allowed. In other words, homeowners who live in transit-oriented developments, or TODs, wouldn't have been able to sue a builder right away. Instead, they would have been forced to allow the builder to come in and repair the defects "within a reasonable time." If the homeowner wasn't satisfied with the repairs, then — and only then — could they bring a legal action.

And it couldn't have been a lawsuit. Senate Bill 52 would have required homeowners in TODs to enter into binding arbitration with builders instead of taking them to court, though that provision could be waived if both parties agreed that a lawsuit would be better. The bill would have also given builders immunity from lawsuits involving "environmental conditions" such as noise, odors, light, vibration, smoke and fumes caused by transit or retail development.

The point of the bill was to encourage the development of the thriving mini-cities around FasTracks that the mayors and civic leaders envisioned. But homeowners and their attorneys balked at the leeway it would have given builders and developers. Attorney Jeff Kerrane, a lawyer for one of the "big three" firms, testified that he's seen the type of substandard repairs that builders offer to perform, and homeowners shouldn't be forced to accept them.

"I had one case where there was a dangerous icing condition on a sidewalk because of poor drainage. And in that case, the builder proposed...to put up a warning sign," he said. "On another case, I had a serious problem where the builder did not install proper firewalls between units.... Rather than proposing to fix the firewalls, the builder instead proposed installing an audible alarm system to warn people about the fire."

The homeowners' attorneys further argued that the builders' insurance crisis wasn't their fault. What caused it, they said, was a 2010 law that the builders themselves lobbied for. The law's goal was to prevent insurance companies from writing limitations into policies that would allow them to get out of covering builders who were sued for construction defects.

"In 2010, the builders said they weren't worried about carriers leaving the state," Sullan says. "That's what's happened. Two years later, when they want a different bill passed, they're arguing the exact opposite. They just make it up. They do!"

Sullan says the builders are using the promise of transit-oriented development to get what they want. "They want to hit that musical note, that hot button," he says. The construction industry knows that mayors are concerned about FasTracks, and they're leveraging that concern in their favor, he says. "I do believe the mayors are being played by the builders."

One of the most ridiculous things about the bill, homeowners' attorneys say, was the way it defined "transit-oriented development" as any condo or mixed-use project within half a mile of a commuter train stop, light-rail stop or bus stop. David Shaw, an attorney with Sullan's firm, testified that the bill would have defined TOD as "basically all of Denver."

Senator Scheffel, the Parker Republican who sponsored the bill, tried to fix that with a last-minute amendment limiting the definition of TOD to development around light-rail stops. But it didn't help. The Senate Judiciary Committee killed the bill anyway on a party-line vote, with the committee's two Republicans voting for it and its three Democrats voting against it.

"I often have the same problem at the legislature that you do in that I never know who's telling me the truth," Democratic senator Irene Aguilar told Scheffel before she voted against the bill. "And we clearly hear two very different stories."

***********

Denver city councilwoman Robin Kniech is one of the civic leaders committed to bringing back a balance between condo and apartment construction.

She sits on an urban-planning steering group convened by the Denver Regional Council of Governments, or DRCOG. Construction-defect litigation is one of the group's areas of focus, and DRCOG has commissioned a study of the issue. One of the questions it aims to answer is whether these lawsuits are interfering with the metro area's long-term goal to have 50 percent of all new housing and 75 percent of all new employment located in urban centers.

"God love DRCOG," says Clark of the Metro Denver Economic Development Corporation. He and others who backed the failed Senate Bill 52 are eagerly awaiting the report in the hopes that it will provide them with some additional perspective and help in shaping their strategy for reintroducing a construction-defects bill in the 2014 legislative session.

In the meantime, there is the raw data. The latest estimate is that 15,000 apartment units are under construction in the seven-county metro area.

Some projects in Denver include: The Douglas, a five-story building comprising 310 apartments at Walnut Street and Park Avenue West in the Ballpark neighborhood; the Delgany Apartments, a 284-unit, ten-story luxury apartment building at 15th and Delgany streets, next to the Museum of Contemporary Art; the Skyline View Apartments, a project comprising 105 apartments on Zuni Street between 28th and 29th avenues in the Lower Highland neighborhood; a 332-unit apartment development at Speer Boulevard and Alcott Street known as 2785 Speer; and One City Block, a 300-unit project spanning Pennsylvania and Logan streets between 18th and 19th avenues in Uptown.

By comparison, the number of condo units under construction in the seven-county metro area is 371, according to John Covert, the director of the Colorado office of MetroStudy, a market-research and consulting firm.

Cary Bruteig, the president of Apartment Appraisers & Consultants, which studies the Front Range apartment market, projects that 5,800 apartment units will be completed this year, and that between 8,500 and 9,000 will be completed next year. That's twice as many as in an average year. "Primarily, construction activity is picking up because the current inventory of apartments is performing so well," Bruteig says. "Developers are wanting to make a profit."

It's true that apartment vacancy rates are low and rents are rising, both signs that apartments are hot right now. But Mike Zoellner, the president and CEO of RedPeak Properties of Denver, which specializes in apartments and is developing both One City Block and The Burnsley at 1000 Grant, a project to convert the Burnsley Hotel in Capitol Hill into penthouse apartments, knows that won't last forever, especially if the market is about to be flooded with new units. Some of those projects are being led by builders who traditionally focused on single-family homes or condos. "As an investor, we think it's a problem," he says.

Kniech's approach to solving that problem differs, in that she doesn't seem loyal to either side. "There are probably four or five reasons people are not building condos," she admits, including consumer preference and the lagging economy. But there's a reason that politicians are focusing their energy on curtailing construction-defect lawsuits, she says. "It's not because the sky is falling. It's because it's an area we may have influence over."

Though the DRCOG study isn't expected to be completed until the end of September, Kniech says the early indications are that construction-defect lawsuits do indeed add to the cost of building condos. Builders can't pass that additional cost along to homeowners, she says, because wages have stayed stagnant throughout the recession and consumers can't afford to pay more for housing. (That theory explains why the few condo projects that have been completed in recent years or are under construction are on the luxury end of the scale.) Faced with that reality, builders are choosing to eschew condo projects altogether, Kniech reasons.

Since it's nearly impossible to separate the predators from the prey, and both sides have persuasive arguments in their arsenals, Kniech figures the only way to come to a compromise is to sit down and hash it out. "We are going to have to do this the old-fashioned way," she says.

Brick by brick.

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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
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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
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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
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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 topcommenter

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 editortopcommenter

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 editortopcommenter

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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