UPDATE: JUNE 28, 2018
Believe it or not, it’s been three years since the Engineer’s Unit, Unit #906, was last occupied by anyone, including a renter. This means the unit is now starting its 4th year as vacant. Vacancy means loss of revenue, and loss of passive revenue means loss of passive expenses and deductions.
Assuming rent is $2.66/s.f./month, State Parkway’s unit owners are paying $24K/year more in higher assessments to replace the lost rental revenue.
If this isn’t abandonment/wasting of assets by State Parkway’s board of directors and management, I don’t know what is. However, State Parkway’s board of directors will have to make a decision whether or not to keep the Engineer’s Unit out of service. If taken out of service, the Association won’t be permitted to deduct book depreciation since it was taken out of service.
UPDATE: JANUARY 30, 2018
Almost another 18 months have gone by and the Engineer’s Unit is still vacant! And this spring will mark the start of the 14th year the board and management have tried to sell the Engineer’s Unit.
UPDATE: AUGUST 14, 2017
More than six months have elapsed since the last update, and the Engineer’s Unit is still vacant. That’s more than two years of lost rental income (and higher unit owner assessments). What a waste!
UPDATE: JANUARY 24, 2017
At last night’s board meeting, the board announced it was considering converting the Engineer’s Unit, which the Association can’t rent (due to tax evasion) and can’t sell (due to massive fraud) into a party room. The board said the laundry room and exercise room used to be 1-bedroom units. If this were to happen, unit owner ownership (and assessments) would increase by .391225%.
UPDATE: DECEMBER 29, 2016
My wife and I requested to inspect the purported tax opinion letter the Association received from its independent accountant, Picker and Associates, regarding the tax implications from the sale of the Engineer’s Unit. With the help of the City of Chicago, we finally received a copy of the document after we filed yet another complaint with the City of Chicago. Guess what? It’s riddled with gross errors and incorrect assumptions.
Before I begin, let me remind you that the Association’s former accountant, CondoCPA, back in 2009, only advocated the sale of the Engineer’s Unit if taxes from the sale can be avoided. However, at the November 1, 2016, special meeting of the unit owners, the board finally admitted there would be tax consequences from the proposed sale of the Engineer’s Unit. Picker and Associates advised the board that “the net effect of the taxable result [from the sale of the Engineer’s Unit] could only be $4,000 to $7,000 federal tax to the association.” However, prior to making this statement, Picker and Associates said, “Reviewing the past few years of association tax returns, losses were generated by deductions in excess of non-exempt function income of about $(50,000) (sic). These losses estimated at $(50,000) (sic) then can be used to offset a portion of the taxable gain from the sale of the unit. We would also review any further expenses for any additional allocations to non-exempt function income or non-member income to further reduce the taxable income to the association.”
To make matters worse, Picker and Associates, neglected to report all of State Parkway’s gross income on the annual tax returns beginning in 2014. The unreported income is in the hundreds of thousands of dollars per year. Moreover, Picker and Association also neglected to take in consideration depreciation recapture because his predecessor generally depreciated the Engineer’s Unit on State Parkway’s annual tax returns from 1994 through 2013. Consequently, the assumptions Picker and Associates used in its purported tax opinion letter are grossly incorrect and State Parkway’s tax liability from the proposed sale of the Engineer’s Unit will actually cost the Association tens and tens of thousands of dollars.
The copy of the tax opinion letter issued by Picker and Associates can be found here: tax-opinion-on-sale-of-the-engineers-unit-10-26-2016.
UPDATE: DECEMBER 22, 2016
At last month’s special meeting of the unit owners, the motion to sell the Engineer’s Unit at a significantly lower price (about $185K) fell well short of the required two-thirds approval. At this special meeting, President Mary Marta admitted that my wife and I were the only people that actually viewed the Engineer’s Unit in the fourteen months it was listed on the market. Meanwhile, the 2017 Budget the board approved last month, like this year’s budget, assumed the Engineer’s Unit would be sold prior to the start of the new year.
Seven months ago I said, in my original post below, that I wouldn’t buy the Engineer’s Unit, even at $150K. Well, now I wouldn’t even buy it for $125K.
UPDATE: NOVEMBER 8, 2016
At last night’s sham board meeting, the board took no action on the Engineer’s Unit, meaning the unit will remain on the market at $229K instead of being leased out. The board, however, may try to have another special meeting of the unit owners for the purpose of getting at least two-thirds of the unit owners to lower the sales price.
UPDATE: NOVEMBER 2, 2016
At last night’s sham special unit owner’s meeting, the board “fell more than 40% short” of obtaining the required two-thirds majority needed to lower the sales price of the Engineer’s Unit to the current appraisal of some $185K, or more than 23.78% lower than the current list price of $229K. Prior to the vote, the board backtracked on the issues of no income taxes on the gain from the sale (there is an income tax liability) and what to do with the net proceeds from the sale (the board lacks the authority to make interfund transfers). Most likely the board will decide at the November 8, 2016, board of directors’ meeting to take the Engineer’s Unit off the market and lease the unit again.
UPDATE: SEPTEMBER 28, 2016
At State Parkway’s September 26, 2016, Board of Directors’ Meeting, President Marta announced that since the unit has been listed (for $229K) more than a year ago, there has ONLY been ONE viewing. (My wife and I viewed the unit shortly after it was listed so we must have been the only ones that viewed the unit.) Now the board wants to have a special meeting to lower the sales price floor from $223K to $175K. I asked the board about the contradictory tax effects of the sale, but they refused to respond. So the next step is for the board to hold another special meeting of the unit owners to approve the sale of the Engineer’s Unit below $223K. (Please note that four months ago I said I wouldn’t even buy the Engineer’s Unit for $150K.)
ORIGINAL POST: JUNE 5, 2016
At State Parkway’s May 26, 2015, Board of Directors meeting, after a discussion during executive session, the board voted to approve the lease cancellation for the tenant in Unit #906, effective June 30, 2015. Less than one month earlier, the board, at the April 27, 2015, board of directors meeting, had approved a one-year lease renewal through May 31, 2016.
It’s now been a year since the Board of Directors abruptly changed course on the association-owned unit (also known as Engineer’s Unit) and listed the unit for sale ($229K) but there have been no takers. This means State Parkway has lost the opportunity to collect at least $18,600 in rent during the last 12 months. Meanwhile, the Association is still paying for the unit’s assessments and property taxes (over $10K/year) even though State Parkway’s 2016 Budget had assumed the unit would be sold prior to January 1, 2016.
It’s probably a good thing State Parkway is selling the Engineer’s Unit, especially since State Parkway’s independent accountants often forget to report the rental income the association received on State Parkway’s tax returns, not to mention State Parkway claimed a whopping $186,274 (which is 81.34% of the current sales price) in rental expense deductions, exclusive of depreciation, during the three years ended December 31, 2013. I never realized that owning just one piece of rental property can be so expensive!
Due to State Parkway’s current financial position as described in my Verified Memorandum in Law (see my June 1, 2016 post), I wouldn’t buy the Engineer’s Unit even if it was listed for just $150K.