Article Courtesy of The New York Times
By Anna Kodé
Published February 28, 2023
In 1992, Howard
Fellman bought a condo in Boca Raton, Fla., for $65,000. And
after he met his wife, Melissa Sobel, just a few years
later, the couple made the condo their first home together.
They experienced many of life’s important moments there,
sharing their first kiss in the condo complex parking lot.
The condo fit their
lifestyle well — it was just across the street from Mr.
Fellman’s family business (a computer training school), they
could walk to their favorite bagel spot and they’d marvel at
the monarch butterflies that were attracted to the garden.
In 2004, right before they had children, they moved out and
into a house four miles away, so their twins could grow up
with a backyard. But they always planned to return to the
condo so they held onto it, renting to a trusted tenant and
looking forward to retirement there.
Now, that retirement plan is at risk. Their condo is one of
176 units in the sprawling development known as Crystal
Palms. An outside investor bought 175.
This puts the Fellmans in a situation that many condo owners
are facing: a forced sale. “After that, they basically said,
‘you’re out,’” said Ms. Fellman, 50. “It’s one thing if your
property’s being taken for public good. But this is strictly
for a private investor’s profit. And it’s like, why does
their investment have more value and power than us?”
Throughout the
country, the share of houses being bought by real estate
investors — including large institutional ones who don’t
live in the homes and instead renovate, convert or rent them
out — is on the rise. In 2021, investors accounted for
nearly a quarter of home sales, up from around 15 percent
for each previous year going back to 2012, according to a
Stateline analysis. |
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Howard Fellman first bought the condo in 1992 for
$65,000.
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In Florida, investors
bought nearly 116,000 homes in 2021, double the amount from
2020. This practice, which disproportionately affects Black
and Hispanic neighborhoods, drives up housing costs,
displacing people and making starter homes even more
inaccessible.
The Fellmans’ struggle
speaks to the uncertainty and risks that come with condo
ownership. For many Americans, the prospect of owning a home
today seems especially bleak. In 2022, mortgage rates hit a
two-decade high, the median home price topped $400,000 for
the first time and the percentage of first-time home buyers
reached its lowest point since 1981. Condos are often seen
as the affordable, low-maintenance way to own a home in this
tight market, but as the Fellmans’ story shows, there are
limited protections for condo owners.
“Condos are the bottom rung on the housing ownership ladder,
and they’re very important for that reason,” said Evan
McKenzie, a professor of political science at the University
of Illinois at Chicago who studies condominium associations.
“This could be the affordable housing that a lot of people
need, but they don’t have the institutional support to
succeed.”
‘A private form of eminent domain’
Mr. Fellman said that the investor, the Pennsylvania-based
Scully Company, never gave him a formal offer before the
forced termination plan was filed. “On one occasion, at the
completion of an annual board meeting, I was asked publicly
over speakerphone if we would consider selling,” Mr. Fellman
said. “I invited them to call me privately to discuss, but
no one ever did.” |
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The Fellmans’ condo is one of 176 units in the
sprawling development known as Crystal Palms. An outside investor
bought 175.
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Despite the inkling that the investor
might want him out, Mr. Fellman, 57, was confident that
things would be fine, since he legally owned the property,
and the condo declaration required that 100 percent of
owners would need to be on board for the condominium to be
terminated.
But the Scully Company
didn’t stop there. Since it owned all the other units, it
was able to take over majority control of the condo board,
and it voted to lower the threshold of owners required to
terminate down to 80 percent. Then, in February 2021, the
Scully Company voted to terminate the condominium, which
meant the Fellmans would be legally obligated to sell their
unit to the company.
Hoping to save their retirement plan and keep ownership of
their condo, the Fellmans sued the investor in September
2021. But a county judge sided with the Scully Company in
April 2022, writing that “anyone purchasing a condominium
unit goes into the relationship with their ‘eyes wide open’
that their rights under the Declaration, including the
percentage vote required for termination, could be altered
by an amendment.” The Fellmans are now appealing the
decision. Legal bills are adding up, but the couple doesn’t
want to give up.
“You can’t take it, it’s not yours, it’s ours,” Mr. Fellman
said. “And we don’t want to sell it, we have plans for it
ourselves. We think that part of ownership is not only the
right to buy it and use it and enjoy it, but also not to
sell it if you don’t want to.”
The Scully Company had acquired the other
175 units in the development in 1997 and has since rented
them out to tenants. For over two decades, Mr. Fellman and
the company coexisted peacefully. |
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“We think that part of ownership is not only the
right to buy it and use it and enjoy it, but also not to sell it if
you don’t want to,” Mr. Fellman, 57, said.
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“We’ve honored the
condominium structure for more than 25 years. As a result,
we have double accounting work and hold regular condominium
meetings,” a representative for the Scully Company said in
email. “We have, from time to time, inquired about
purchasing Mr. Fellman’s unit because of the additional
expenses it causes. We approached the situation with offers
that would be mutually beneficial to both parties.”
The Scully Company
manages dozens of developments in Pennsylvania, New Jersey,
Connecticut, Massachusetts and Florida. A one-bedroom,
one-bathroom unit in Crystal Palms goes for $1,735 per
month, the company said. Three-bedroom units rent for $2,670
to $3,340.
Typically, real estate companies that acquire condos in this
manner knock them down and convert the property into
smaller, higher-density apartments, Mr. McKenzie said. This
process is known as “deconversion,” he noted, calling it “a
private form of eminent domain.”
“Many states have added provisions that the investor
wouldn’t have to get every single unit to dissolve the
association, to avoid the situation where there’s one
holdout who could stop it, like when a person refuses to
sell their house, and there’s skyscrapers all around them,”
Mr. McKenzie said. “If you got to a certain percentage of
the units that were owned by one investor, then the state
could make the other people sell.”
The intention of those provisions, Mr. McKenzie added, is to
prevent a scenario where a single holdout owner is able to
block a supermajority of owners from selling the building,
especially in the case of dilapidation. “Without this
provision, it would require unanimity to sell the building,
which is very hard to get,” Mr. McKenzie said. “If a condo
building falls into serious disrepair, should one owner be
able to force all the others to stay locked into the
project, even if they can’t afford to fix it, get it up to
code, et cetera?” |
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The appraiser hired by the Scully Company assessed
the Fellmans’ unit at $200,000. But Zillow’s home estimate tool gave
the Fellmans’ condo an approximate worth of $323,500.
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Mr. McKenzie, who
tracks deconversion in a database, said he’s observed
hundreds of condos being deconverted to apartments in
Illinois over the past decade. Legal requirements in
Illinois for deconversion include a threshold of 75 percent
ownership for developments with four or more units.
The current version of Florida’s Condominium Act requires
approval from 80 percent of the total voting interests of
the condo, with less than 5 percent opposition, for a condo
termination to proceed. In 1979, the act required the
consent of all of the unit owners, which was in place when
Mr. Fellman bought his condo. The share of owners required
to approve a termination was reduced initially in 2007 to
help owners get out of failing condo projects that were
damaged from natural disasters, but this eventually became a
pathway for developers to take over condominiums more
easily. In 2017, to help combat developers taking advantage
of this, the state added that only 5 percent of owners would
need to oppose a termination for it to be halted.
In 2014, Republican Senator Rick Scott, who at the time was
the governor of Florida, wrote in a letter to Florida’s
Department of Business and Professional Regulation that he
was “deeply concerned” about the 2007 law. “The law appears
to have negatively impacted a number of families throughout
the state, leading to the loss of their homesteaded
property, and in many instances, resulting in the financial
burden of remaining mortgage debt after the sale of their
condominium,” Mr. Scott wrote.
While the state law was changing over the years, the rules
for termination in Crystal Palms’s condo declaration, a
legal document filed with the county, remained the same —
requiring 100 percent owner approval. That is, until the
Scully company voted it down to 80 percent in 2021, after
taking over majority control of the condo board.
According to Florida’s Department of Business and
Professional Regulation, over 360 condominiums, containing
over 26,500 units total, have been approved for termination
since 2012. Last year alone, the state had 23 terminations,
encompassing nearly 550 units.
With these kinds of sales, Florida’s condo termination
statute states that the original owners should be given
“fair market value” for their respective units. However, the
statute also makes clear that the pricing ability goes to an
appraiser selected by the termination trustee, or in this
case, the Scully Company.
The appraiser the company hired assessed the Fellmans’ unit
at $200,000. But its Zestimate — Zillow’s home value
estimate tool which takes into account square footage,
location and market trends, among other factors — gives the
Fellmans’ condo an approximate worth of $323,500.
‘I can’t just start over’
In Florida, Mr. McKenzie expects that condo terminations
will be on the rise in the upcoming years. Following the
deadly Champlain Towers condo collapse in Surfside in 2021,
the state passed legislation that mandates costly safety
reforms. Going into effect starting in 2025, older condo
buildings will have to undergo regular inspections, having
to rectify maintenance issues that have been deferred for
decades in some cases.
Condo associations will also be required to reserve funds
for future repairs and upkeep. Unit owners who can’t afford
or don’t want to pay the additional expenses for these
maintenance mandates will be more inclined to sell to
outside investors, giving developers more opportunities to
buy enough units in condominiums to eventually terminate
them.
“To the extent that moderately priced condominiums are the
target of deconversions, this phenomenon has the potential
to reduce the supply of affordable, entry-level housing for
new home buyers,” Mr. McKenzie wrote in an article in the
John Marshall Law Review. “Deconversions are evidence that
some condominium developments are no longer financially
viable because most of the owners would rather sell their
units than continue to fund repairs.”
While the Fellmans are distressed about what this could mean
for their financial situation and retirement plan, they’re
also concerned about their tenant, Jodi Viscel.
Ms. Viscel, 50, has three children and has been living in
the Fellmans’ condo since 2012. The fact that it’s a first
floor unit is ideal for her, since she’s disabled. Because
she receives housing assistance from the government, she
only has to pay $137 in rent each month.
“If I’m evicted, I don’t know if I’ll find somewhere else to
go, because it’s really hard to find places with Section 8
that are nice,” Ms. Viscel said. “This is a perfect spot for
me and my kids. We’ve been here a long time.”
“From my point of view, it’s very scary, because I don’t
know if I’m going to lose the place I’ve been living in for
the last decade,” Ms. Viscel said. “I’m just praying that
it’ll work out. It would just turn me upside down if it
doesn’t. I can’t just start over like that.”
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