Best Wishes for the New Year!

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1 AOUO YACHT HARBOR TOWERS 1600/1650 Ala Moana Blvd, Honolulu, Hawaii Phone: (808) Fax: (808) Toll-Free: Web Site: yachtharbortowers.org JANUARY 2011 NEWSLETTER Best Wishes for the New Year! Aloha YHT Owners and Residents: 2010 was an exceptionally busy year as we prepared for major renovations to our property. As you can imagine, this is a very important and complicated process for a property which is nearly 40 years old and must meet today s more rigorous safety standards and replace or repair major elements in order to regain and maintain its reputation as a premier condominium in Honolulu. This is the year that we can look forward to significant progress in implementation of the most critical elements, including repairing and waterproofing the concrete of the parking levels, refurbishing the elevators and replacing the windows in every apartment. These major projects and their financing are the main subject of this newsletter, which is of necessity rather long in an attempt to clarify a number of questions which owners have asked, relating in particular to financing. OWNERSHIP and PCI (Percentage of Common Interest) EXPLAINED Our condominium is an Association of its individual apartment owners, as are other condominiums throughout the US. The owner of each apartment holds a share in the Association, known as a Percentage of Common Interest (PCI), which varies according to the apartment s size and location and was established when the property was first marketed. Percentages for the 456 residential apartments range from.125% to.608%. This percentage does not change when an apartment changes hands. The Association manages, maintains and renovates the structure, common elements and utilities through a Board of Directors elected by the owners. The costs of doing so are passed on to each owner in a monthly maintenance fee in proportion to her/his apartment s Percentage of Common Interest (PCI). All costs incurred by the Association on behalf of the owners belong to the Association, including any loans required to implement major projects. The Board of Directors prepares an annual budget in which any adjustments to the monthly maintenance fee up or down are detailed. The 2011 Operating Budget is under final review. The good news is that, subject to that final review, it is likely that the residential units will not see an increase in their monthly maintenance fees. This estimate includes the expected first-year cost of draw-down on the loan for renovations detailed below. These

2 Page 2 are averaged over the period of draw-down. Also some cost savings achieved against budget in 2010 continue into THE RENOVATION LOAN AND PAYMENTS In 2009, more than the required 50% of ownership interest approved the acquisition of a loan up to $17 million (seventeen million dollars) for major repairs and renovations to the property, the most important of which are detailed below. This is a maximum limit and it is possible that the final amount will be lower. Without a loan, there would be significant increases required in maintenance fees to pay for essential repairs and renovations. The loan will be drawn down in installments as necessary to pay for projects in progress. The current projection is that approximately half - $8.5 million - will be disbursed progressively during the course of the first twelve months. During the first two years, the bank will charge only the interest on the actual amounts taken. Thereafter it will recover both interest and principal for a further ten years. However, the interest and principal are based on an amortization period of 20 years, which will result in a balloon (final) payment by the Association after 12 years. At that time, it is expected that the Association will refinance the outstanding balance of the loan, as is normally the case. The Association in turn will recover these payments in one of two ways at the choice of individual owners. 1. Individual owners may elect to have the cost included in their monthly maintenance fees, as with all other common costs and in proportion to each apartment s Percentage of Common Interest. As stated earlier, the 2011 budget (subject to final review) does NOT project an increase in the maintenance fee from the 2010 level, even after including the loan charges. In future years also, cost savings projected from the renovations are expected to maintain the level of increases at or near the levels of annual inflation. 2. Some owners may prefer to pay their share of the loan in two advance installments in 2011 and 2012, thus reducing the remaining amount of the loan needed by the Association. These owners will see a reduction in their annual maintenance fee of approximately 4% (four percent), reflecting the interest that will not be passed on. The first payment under this option will be 50% of the lump sum due according to each owner s Percentage of Common Interest. The second payment, in 2012, will reflect the projection at that time of how much of the remaining loan is needed to complete the renovations. In any event, it cannot be more than the initial payment. A table of the lump sum payments and maintenance fee reductions as they relate to this option in 2011 is given below. All owners will shortly receive a letter from our managing agents, Hawaii First, Inc., giving you an exact figure for your individual apartment, should you choose the lump sum payment (Option 2), which is due by April 1, If any owner does not positively select Option 2, they will be assumed to have selected Option 1. Owners may elect to switch to Option 2 later, if they wish.

3 Page 3 Lump Sum Payment Option Estimated 50% Lump Monthly Sum Payment Savings PCI % Due 04/01/11 04/01-12/31, % 10, % 11, % 12, % 13, % 14, % 15, % 16, % 18, % 19, % 20, % 21, % 23, % 24, % 25, % 26, % 27, % 29, % 30, % 31, % 37, % 51, % 125, Note: PCI s are for the various types of apartment available. If you do not know your own percentage, you may check with the manager s office or wait for the letter from Hawaii First. Savings in future years will increase but depend on the extra amount of loan taken. STATUS OF MAJOR RENOVATION PROJECTS As funds are needed for the renovations, a draw on the loan will be made, depending on the terms of each contract. For one example, the contract for spalling repairs is based on work completed. If the overall amount is for $1.1 million and the work is projected to take 12 months, monthly payments will be $91,677, assuming an equal amount of work is done each month. For another example, the contract with Otis Elevators provides for 30% payment on signing, 30% when the materials necessary for the project arrive in Hawaii, 30% when the work is done and 10% when the project has been completed to the Association s satisfaction. 1. Spalling We are pleased to advise you that we have secured the building permit to proceed with the spalling repair work which is projected to start with the parking structure in. Structural Systems,

4 Page 4 Inc. has been chosen as the contractor. (Spalling occurs when water permeates concrete, causing its breakdown and rusting of the reinforcing bars.) When the spalling repair work is completed, Structural Systems, Inc. will waterproof the entire flooring of the 2P through 4P parking surfaces. While some have argued that this is an unnecessary expense as water does not visibly accumulate in the interior areas of the parking decks, this is not true. Waterproofing just the perimeters of the areas will not prevent recurrence of spalling. Areas that are NOT waterproofed are exposed to the elements and just a minute amount of water incursion will start the spalling process which CAN and WILL spread underneath the waterproofed areas. When this occurs, we will again have the same problems as we do now, a preventable costly repair. The only way to ensure that our monies are well spent is to waterproof the ENTIRE area. 2. Building Entry Systems Communications Consulting Services Inc. will begin installation of the new touchpad enterphone system in February In order to effect a smooth transition, the current bulletin board of names and codes will be retained for the Ewa Tower and the 2P Diamond Head Tower entrances. The main Diamond Head 4P system will be replaced with a free standing touch screen entrance panel. The enterphone system will work with either your cell phone OR your landline number. Communications Consulting has also been selected as the Security Consultant to assess our current security infrastructure and provide recommendations for upgrade of our system with attendant technical specifications and drawings. The Security Consultant will also work with the architectural firm which will be selected by the end of January after all bid proposals have been received. 3. Elevators The Renovation Committee has been working on selecting the Otis elevator cab control panel finishes and will work with the architect to determine the lobby elevator frame, door, and cab finish. 4. Drains Continental Mechanical of the Pacific is in the process of completing its video of the underground drain and sanitary lines and we are awaiting the final report. 5. Windows The replacement of our windows at YHT is a large part of the Renovation Project and an extremely critical one as it has perhaps the largest impact in preserving the safety and welfare of our residents. The following issues must be addressed: Our current windows are glazed with only one-eighth inch glass. (To give you some perspective, glass in picture frames is thicker.) Further, our windows are not safety glass and will shatter into large pieces capable of severely injuring anyone within the unit or walking below. They would fail completely in hurricane force winds, resulting in substantial damage within an

5 Page 5 apartment and rendering it uninhabitable. This type of glass is never used on the mainland and should never have been installed when the units were built. (Since a glass/window code was not in existence in Hawaii, the contractor used the cheapest glass available.) To date we have been extremely fortunate that owners have not sustained any injuries from this type of glass. Typical windows today are safety glass a quarter inch thick, with a membrane between the glass which will cause it to shatter in very small pieces similar to your car windshield. But it will not fall out of the casing due to the membrane. Our windows are almost 40 years old. The frames are subject to failure due to age and to galvanic corrosion from the improper use of fasteners. Most frames are only held in by the caulking around the windows, again predisposing them to failure in high winds. Again due to age, the rubber gaskets on the windows have failed and we have water and wind intrusion which cannot be controlled. The solution to these issues is a complete replacement of the windows. And, we need to do this before we have a catastrophic failure. Again, the safety and welfare of the residents are paramount. YHT has benefited from the performance of the windows for decades of bonus time past their original design life. Some have suggested doing only one side of the building or only those windows perceived to have a problem. This would be highly impractical since all our windows are first and foremost a safety risk. It cannot be stressed enough that we are currently living on borrowed time given their age and casings. It will never be cheaper than it is now to replace all the windows while we have the glass contractor on site with his equipment in place. If we were to replace only half the windows now and half in five years, it would be negligent on our part from a safety standpoint. We could also expect the price to double for the second installation. The new windows will be a tinted thermal break window which is actually a two-part glass system with a one inch air gap between them. These windows are not only safety glass, but will withstand heavy winds. Further, the tint as well as the gap will reduce the heat gain from the sun and in turn, produce considerable energy savings by reducing our air conditioning costs. Outside noise levels will also be reduced. Currently we are looking at two different window options for the bedrooms and three different window options for the lanais. For the bedroom and dining areas we have a fixed window or a vent throw window which means that you have a two-foot by four-foot awning type window that you can open to allow air circulation. For the lanai window designs we have these two types plus a sliding window option. The sliding window option is only offered for lanais as, even with today s technology, the gasket design is not waterproof or windproof in high winds. We are still awaiting window designs from the window consultant for the side windows facing Ala Moana and the Ala Wai canal, the mauka kitchen windows, and the hallway kitchen windows.

6 Page 6 We will keep you advised as more information is provided by the Renovations Committee. We await final specifications on the windows/glazing from JA Weir, who is working on code, missile impact, seismic impact and other requirements for the window design and concepts for the lanai (sliding window option), side, and kitchen windows. 6. Other Projects As the Renovations Committee continues to review the work that must be done and as cost estimates are received, the budget for the renovations will be revised. In order to stay within the overall $17 million budget, lower priority items may not be addressed at this time, for example, re-skinning the unit doors. Some of the lower priority items may be taken up as part of our on-going maintenance, while other items will be included in our Reserve budget for future repair or replacement. The objectives of the renovations are to resolve the safety issues, repair and/or upgrade our infrastructure, implement energy conservation measures, and to upgrade our lobbies. HOMEOWNERS INSURANCE As a reminder, at the March 10, 2009 Annual Meeting, the Association authorized the Board of Directors to require that all Unit Owners purchase reasonable types and levels of insurance coverage for their respective individual Units. Such required coverage is to include, but is not limited to, coverage of the uninsured deductible of some other owner whose unit may suffer damage caused by the Owner s Unit, any damages to the Owner s Unit not covered by the Association s required insurance coverage, as well as insurance coverage for all of the decorating, painting, wall and floor coverings, trim, appliances, equipment, and other furnishings of the Owner s Unit. Owners are encouraged to secure whatever coverage they feel is appropriate for their individual unit above the minimum coverage. Why is this important? Over the years, the Association and individual Unit Owners have been faced with situations where loss or damage to the common elements and/or to units have been caused by Owners or their tenants or from a condition originating from another unit. This most commonly involves water leaks. Most owners have insurance to protect themselves from personal liability, to cover damage to their apartment contents or upgrades, or to cover damage the owners may cause to others that are not covered by the Association s insurance. Unfortunately, some owners have decided not to carry any insurance, to the detriment of not only the uninsured apartment owner, but also to the Association and other owners in the building who are put at risk. The law now requires owners in a condominium to obtain insurance for themselves upon the vote or written consent of a majority of the owners and if an owner fails to do so, the Association or the Board may obtain such insurance and charge the owner the reasonable premium cost for the coverage. Owners are required to submit a valid Certificate of Insurance or a copy of the Insurance Policy Declaration page to the management office. Every year that the Owner s policy is renewed, the Owner must submit a copy of the updated information. If a Unit Owner does not purchase or produce evidence of insurance, the Board will purchase the insurance coverage and charge the reasonable premium cost back to the Unit Owner.

7 Page 7 YHT BOARD Curtis King has been appointed to serve in the place of Joy Cunefare, who recently moved away from Yacht Harbor Towers and resigned from the Board. Curtis is an engineer and has many years of experience working with mechanical and electrical systems. His current work also involves personnel management, maintenance planning and budgeting. Thank you, Joy, for your time and effort and the contributions you have made to the Association. We wish you well in your future endeavors! Nan Sugai has been elected as the vice president of the Board. She will also chair the Owner Communications Committee, whose other members are Ian Capps, Lei-Jayne Lee, Setsuko Nakamura, Miyako Omori and Mayumi Otaki. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * This newsletter was approved by your YHT Board of Directors. Communications from your Board come to you via periodic newsletters, updates on the bulletin board, the YHT website at and on Chanel 25 (the in-house TV information channel). While you may periodically receive communications from individual Board members or other Owners, such communications do not necessarily reflect the opinion of the Board as a whole.

8 AOUO Yacht Harbor Towers Board of Directors Officers President Lei-Jayne Lee Vice President Nan Sugai Secretary Mayumi Otaki Treasurer Frank Kaneshiro Directors Curtis King Audrey Kubota Ulrich Klinke Suzanne LeMoine Garrett Wheeler "The world is so fast that there are days when the person who says it can't be done is interrupted by the person who is doing it." Anon AOUO Yacht Harbor Towers 1600/1650 Ala Moana Blvd. Honolulu, HI 96815