Sell now or pay later?
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High-rise condominiums along Fort Lauderdale beach are among those facing tighter inspections and financial rules under a new state law passed by the Legislature this year. |
Facing change
The new law requires the following:
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At 30 years old, buildings three stories and higher must be inspected. Thereafter, inspections must be conducted every 10 years. If built before July 1, 1992, the first structural inspection must be performed before Dec. 31, 2024.
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Buildings less than three miles from the coast must be inspected at the 25-year mark and again every 10 years.
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Inspection reports must identify significant structural deterioration, whether it’s dangerous or unsafe, and whether it should be repaired. Copies of reports must be distributed to all condo unit owners.
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Condo boards must conduct reserve studies every 10 years to determine how much money owners must be assessed to cover future repairs. The studies are planning tools that analyze the health of an association’s finances and physical property as it prepares for major repairs and replacement projects.
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Boards are barred from waiving the reserve requirement or using reserve money for other purposes.
For years, members of
many Florida condo associations have voted each year to
waive setting aside money for reserves, the equivalent of a
rainy-day fund covering large expensive repairs in their
buildings. Waivers were previously permitted under state law
as long as a majority of unit owners voted to approve them.
Waivers are still permitted under the new law but are
limited to components not related to structural integrity.
Thus, funding waivers cannot be approved for projects such
as the roof, load bearing walls, electrical systems,
plumbing, windows and foundations, among other items.
The collapse at Surfside, a disaster that killed 98 people,
led to the disclosure that the condo’s board members and
other residents had waged protracted arguments over the cost
of major structural repairs.
No official cause of the collapse has been identified by the
National Institute of Standards and Technology, a federal
agency whose investigators have been gathering evidence
including steel and concrete samples. Investigators are also
interviewing survivors and people who participated in the
rescue effort.
But the catastrophe generated a ripple effect around the
state: If a building Surfside’s age could collapse, what is
the fate of countless other high-rise condominiums?
Many of them, particularly along Florida’s coastlines, have
been pummeled by wind, rain and saltwater and require
constant attention, experts say. Built in 1981, the 12-tower
Champlain Towers South was undergoing a 40-year inspection
mandated by Miami-Dade County.
“I think there is a little bit of a 9/11 effect here,” said
Joshua Tomey, of Black Briar Management in Miami, referring
to how a deadly tragedy can trigger immediate lawmaking or
regulatory measures to ensure it doesn’t happen again.
Concerned about safety
After the collapse in Surfside, lawmakers at state and local
levels did swing into action to buttress inspection
requirements, or to install regulations where there were
none at all. The latter instance applied to most every
county in the state except for Miami-Dade and Broward, the
only counties that had 40-year inspection requirements in
place.
An industry official said that anecdotally, engineers charge
in a range between $10,000 and $30,000.
The Condominium Association Institute, a Virginia-based
advocacy organization with 42,000 members in the U.S.,
Canada and elsewhere, said there are 1.5 million units in
Florida, with 37% in Broward and Miami-Dade. Of the
statewide figure, 75% of the units are in buildings
constructed before 1990.
Dawn Bauman, senior vice president of government and public
affairs at the institute, says the number of residents who
are leaving their condos for financial reasons is
incalculable at this point. “We don’t have specific data
that says whether people are moving out of condos or not,”
she said in an interview.
The Broward, Palm Beaches & St. Lucie Realtors and
Realtor.com both said they lack data on the movement of
people in or out of older condos.
“It feels like there might be concerns — ‘Oh my God, we have
this law that passed in Florida and that’s going to increase
the cost,’” Bauman said. “But will it increase costs for
every single building in Florida? No. There are many, many
buildings already doing what the law requires for the most
part.”
A 2020 survey of associations, conducted for a foundation
with ties to the institute by Zogby International, showed
that 60% of the people who live in a condominium said their
association maintains a reserve study. The survey showed 71%
supported investing in the reserve funds.
“We have more buy-in now than then,” Bauman asserted.
She acknowledged that the number of older buildings in South
Florida is sizable.
“That doesn’t mean those buildings haven’t been maintained,”
she said. “That doesn’t mean the buildings haven’t had the
work done that needs to be done.”
But several condo association advisers and consultants in
South Florida believe the new law will result in an uneven
playing field for present and future condo residents.
In observance of the one-year anniversary of the deadly
Surfside Condominium Collapse, the 60-story Paramount Miami
Worldcenter skyscraper lights up the Miami skyline with a
digital memorial message to the families of the victims of
the June 24, 2021, catastrophe. (Eva Marie Uzcategui/AP)
“When Champlain happened, it just put the whole thing in
overdrive,” said Miami condo attorney Joe Hernandez, of
Weiss Serota Helfman Cole & Bierman. “Now there are going to
be mandatory reserves. What was already an unfavorable
situation for residents in older buildings is now even more
so.”
And some argue the new law contains uncertainties that must
be resolved.
“There are still a lot of questions that remain on these
laws that are being passed,” said Joshua Tomey, of Black
Briar Management, an association advisory firm in Miami.
“What we don’t know yet is the state’s expectations that not
only do reserves have to be funded, but do associations have
to make up for funding that has not been made after waiving
funding over the last few years?” he asked.
Bauman believes the law’s intent is to require unfunded
reserves to be funded by its start date.
Tomey also worries about how quickly a major industry can
muster the ability to comply.
“These laws need refinement to be realistic in how it can be
addressed in a short period of time,” he said. “How do you
have a multibillion-dollar industry pivot so quickly?”
Others suggest there might be a new universe of haves and
have-nots.
“The costs of owning a condominium are going up, period,”
said Jonathan Weislow, vice president and head of the HOA
and condo association team at the Amicon consultancy firm in
Miami. “People are seeing insurance costs are doubling if
not tripling.”
That’s in addition to increases in energy and interest
rates.
“You are going to have people on fixed incomes are not going
to be able to live in these condos,” he said. “What’s going
to happen to these people? Where are they going to go?
“It’s foreseeably going to cause a problem,” he said.
One way out: terminations
Potentially, the South Florida market will end up seeing the
the termination of condo associations and the sale of their
buildings to developers, an activity that is already
underway.
“I think that’s coming,” he said. “It’s going to be a long
process. It’s not an ideal process. It gives owners the way
out of paying the maintenance fees. Developers are licking
their chops right now and they should be.”
Condo and high-rise apartment developer Related is among the
developers actively seeking properties along the coast for
redevelopment into luxury buildings.
Many unit owners are deciding to take up investors on their
offers and buy a new residence with the cash. But analysts
note that the sellers won’t be replicating their beachfront
style as it’s too expensive.
Loan programs for associations and residents
For those associations and residents under financial
pressure to pay for repairs, U.S. Reps. Charlie Crist and
Debbie Wasserman Schultz introduced legislation designed to
provide federal loan programs through the Department of
Housing and Urban Development.
One bill, introduced in April, is a program to help
individuals pay their special assessments.
The second bill, introduced earlier this month, would
provide “rapid financing for critical condo repairs.” Under
this scenario, the borrowers would be the associations.
Crist, while attending a political event in Fort Lauderdale
on Saturday, told the South Florida Sun Sentinel he believes
the proposals have a good chance of being passed.
“I think we have a pretty good shot at it, I really do,” he
said. “As so many people are familiar with what happened at
Surfside, it almost speaks for itself, to be honest, and
it’s such a powerful emotional issue.
“I think it’s a nonpartisan thing, really, and it should
be,” he added.
Given the growing expense facing owners and their
associations, is the condo way of living headed for the
history books?
“I don’t think so because there are a lot of new
condominiums,” Hernandez said. “There are a lot of new
projects in the works.
“There seems to be healthy demand for good projects that are
well located. If the associations take the right steps to
build up reserves early, then it can work.”