Buying a condo in the South Loop is exciting, but the building’s finances can make or break your experience after closing. One of the most important numbers you will review is the HOA’s reserve fund. Strong reserves help cover big repairs without surprise special assessments. Weak reserves can delay maintenance, strain owners, and even affect your mortgage options. In this guide, you will learn how reserves work, how to spot a healthy budget, and what to look for in South Loop high-rises so you can buy with confidence. Let’s dive in.
What HOA reserves cover
Reserves are the association’s long-term savings for major, nonrecurring repairs and replacements. They are different from the operating budget. Operating dollars pay for day-to-day costs like utilities, staff, routine maintenance, and insurance. Reserve dollars are set aside for big-ticket items such as roofs, elevators, boilers, façade and window systems, parking garage repairs, and major HVAC equipment.
Reserves exist to smooth out costs over time. Instead of facing frequent large special assessments, owners contribute gradually through monthly dues. Reserves also help keep the building safe and marketable and meet common expectations from lenders and insurers.
Funding comes from monthly assessments that include a reserve contribution. If reserves fall short for a major project, associations may levy a special assessment or borrow for very large needs, according to their governing documents and state law. The board manages the funds under the declaration and bylaws.
How much is “adequate”
Reserve studies 101
A reserve study is the standard tool for judging adequacy. It lists major components, their remaining useful life, projected replacement costs, and a funding plan. Associations should complete a full, component-based study every 3 to 5 years and update it annually. Updates keep assumptions current and help boards plan contributions that match real-life wear and costs.
Key metrics to read
- Current reserve balance: cash on hand for capital items today.
- Annual reserve contribution: how much the HOA adds each year from dues.
- Fully funded balance: the amount reserves should hold today to be on track, based on the study.
- Percent funded: current balance divided by the fully funded balance. This shows how close the HOA is to its target.
- Reserve funding plan: the roadmap for contributions, and whether future assessments or borrowing are expected.
Helpful benchmarks
Benchmarks vary by building type and age, but these ranges are common guideposts:
- 70 to 100 percent funded is often considered strong.
- 30 to 70 percent is partially funded, and needs context like building age and planned projects.
- Below roughly 30 percent is widely viewed as a risk for special assessments or sudden dues increases.
High-rise South Loop buildings often need higher reserve levels than small low-rises. Many have elevators, curtain walls, parking garages, and amenities. These systems are expensive and complex, so a detailed funding plan is essential.
Mortgages and special assessments
Lender review basics
Most lenders review a condo project’s financial health as part of underwriting. They look at reserves, delinquency rates, owner occupancy, insurance, litigation, and whether a recent reserve study exists. If reserves are low, if the study is outdated, or if there is a history of large special assessments, a lender may tighten requirements, require a bigger down payment, or decline the loan. Requirements vary by program and change over time, so confirm project-level rules with your lender early.
Why special assessments happen
Assessments are usually tied to unexpected failures, deferred maintenance, or planned projects that exceed available reserves. Your declaration and bylaws control how assessments are approved, the notice required, and how costs are allocated across units. Lenders often require disclosure of any approved or pending assessments, and some may require payment or escrow at closing.
Insurance considerations
Large or frequent insurance claims can strain operating budgets and crowd out reserve contributions. Ask about any major claims in recent years and the master policy deductible. Very high deductibles can shift more cost to owners if a claim occurs.
How to read budgets and reserve studies
Documents to request
Before you commit, ask for:
- Most recent annual budget and year-to-date income statement.
- Full reserve study and the latest update.
- Last 2 to 3 years of audited or compiled financials and year-end trial balances.
- Board meeting minutes from the last 12 to 24 months.
- Master insurance declarations page and any fidelity bond.
- Schedule of owner delinquencies and the collection policy.
- List of capital projects completed in the past 5 years and planned projects with estimates and timing.
- Governing documents, including declaration, bylaws, and rules.
- Recent engineer reports, façade or structural reports, and elevator inspection reports.
- Occupancy mix and the number of investor-owned units.
Operating budget review
Look for recurring expenses such as utilities, management, janitorial, security, routine elevator maintenance, and insurance. Compare year-over-year line items. Large increases, especially in insurance and utilities, should be explained. Healthy budgets match realistic costs and allow for stable reserve contributions.
Reserve study review
Scan the component list for roof, windows and curtain wall, façade and waterproofing, elevators, boilers and chillers, domestic hot water, parking structure membranes, and amenity equipment. For each component, note the estimated replacement cost, remaining life, and projected replacement year. Check the inflation and cost assumptions. If inflation is understated, the plan may be short.
Funding level and plan
Find the percent funded and the fully funded balance. Then read the funding plan to see how the HOA plans to close any gap. Are contributions scheduled to rise over time. Does the plan expect a special assessment or borrowing. Good plans are clear and realistic.
Red flags in the records
- No recent reserve study or no line-item reserve schedule.
- Very low percent funded, especially under roughly 30 percent.
- Large projects discussed in minutes without a funding plan.
- Repeated special assessments in recent years, or a large pending assessment.
- High owner delinquency rate, often above 10 percent is a concern.
- Pending litigation that insurance may not fully cover.
- Insurance policies with unusually high deductibles.
South Loop factors to watch
Building profiles
The South Loop blends older pre-war and mid-century high-rises, newer luxury towers, and conversion buildings. Many include elevators, curtain walls or brick façades, attached garages, and sizable amenity areas. Proximity to the lake and Chicago’s freeze and thaw cycles can speed up exterior wear. Road salt can also impact parking structures.
Common capital projects
Expect frequent needs for façade repair, tuckpointing, and waterproofing. Window and curtain wall resealing or replacement is common due to water intrusion risks. Elevators often require modernization or replacement on long cycles. Roof replacement, terrace waterproofing, boiler and HVAC replacements, domestic hot water systems, parking garage membranes, and mechanical overhauls are typical major items. Amenities, such as pools and fitness equipment, also need periodic replacement.
Market and finance implications
Older high-rise envelopes and water intrusion histories draw lender attention. Large façade or window projects can cost millions, which may lead to special assessments or HOA borrowing. Buildings with high investor percentages or short-term rentals can face higher delinquency risk and closer lender scrutiny. If you see a building planning an envelope or window project, study the numbers closely.
What to do about red flags
If you find a concern, take these steps:
- Ask for supporting documents such as engineering reports, contractor bids, and detailed assessment notices.
- Clarify whether the association plans to borrow, the expected terms, and whether an owner vote is required.
- Confirm lender implications with your mortgage officer, including any project approval hurdles.
- Consider escrow for your portion of a pending assessment or negotiate terms such as a seller credit.
- Consult an Illinois condominium attorney for document review, and a building engineer if structural or envelope issues are suspected.
Buyer checklist
Documents to request
- Latest operating budget and year-to-date profit and loss.
- Full reserve study and most recent update.
- Last 2 to 3 years of audited or compiled financials.
- Board minutes for the past 12 to 24 months and any recent vote packets.
- Insurance declarations for the master policy and any fidelity bond.
- Current reserve balance record, as close to contract date as possible.
- Owner delinquency schedule and collection policy.
- List of capital projects completed in the last 5 years and planned projects with timelines and costs.
- Declaration, bylaws, and rules, with attention to assessment and loan provisions.
- Engineer, façade, elevator, or code reports.
- Occupancy mix and percent owner occupied versus investor owned.
Questions to ask
- When was the last reserve study completed and when is the next update.
- What is the current percent funded and the fully funded balance target.
- What capital projects are planned in the next 12 to 24 months, and how will they be funded.
- Has the association considered borrowing for any projects, and would an owner vote be required.
- Have there been special assessments in the last 5 years, why, and how were they paid.
- What is the current delinquency rate and how does the collection policy work.
- Have there been significant insurance claims in the last 5 years, and are any claims pending.
- Are there known deferred maintenance items or envelope issues.
- Does the master policy have large deductibles or exclusions buyers should understand.
Trusted resources
- Your lender or mortgage broker to confirm condo project eligibility and any reserve-related requirements.
- An Illinois condominium attorney for contract language and document review.
- Reserve study professionals and engineers for technical reviews of big projects or suspected deferred maintenance.
- Local management companies and building engineers for building history and maintenance schedules.
- Your title company to confirm how assessments and liens are handled and to review recorded notices.
Final take
Strong reserves help protect your investment, your monthly budget, and your ability to finance your South Loop condo. Focus on two headline items, percent funded and planned projects in the next 1 to 5 years. Then back that up by reading the budget, reserve study, and minutes for clarity on timing and funding sources. If anything looks uncertain, ask questions early, loop in your lender and attorney, and negotiate protections in your contract when needed.
If you want a second set of eyes on a budget or reserve study, or you need help comparing buildings, reach out to Camille Canales. Our team can guide you through the documents and help you move forward with clarity.
FAQs
What are HOA reserves in a South Loop condo building
- Reserves are the HOA’s savings for major repairs and replacements, different from the operating budget that covers day-to-day costs.
How do I know if reserves are adequate for a South Loop high-rise
- Check the percent funded, the fully funded balance, and whether a current reserve study supports a realistic funding plan without frequent assessments.
How can low reserves affect my mortgage on a South Loop condo
- Lenders review project finances, and low reserves or an outdated reserve study can lead to tighter terms, bigger down payments, or loan denial.
Why do special assessments happen in South Loop condos
- They are used when unexpected failures occur or planned projects exceed available reserves, as governed by the building’s declaration and bylaws.
What documents should I request before buying a South Loop condo
- Ask for the budget, reserve study and update, recent financials, board minutes, insurance documents, delinquency schedule, project lists, and any engineer reports.
Which big-ticket items most often use reserves in South Loop high-rises
- Façade and waterproofing, windows and curtain walls, elevators, roofs, HVAC systems, parking garages, and amenity equipment are common reserve uses.
What should I do if I see an upcoming special assessment in a building I love
- Request details and bids, confirm lender impacts, consider escrow or seller credits, and consult an attorney to protect your interests.
