In the early morning hours of June 24th, 2021, a 12-story building with 136 condominiums in Surfside, Florida, partially collapsed without warning. The Champlain Towers South went down in a matter of minutes with 101 residents inside. Only three people survived. The disaster riveted the nation, and even international experts came in to Florida to help with recovery efforts. The questions began: What happened and what can be done to avoid such a disaster in the future. In May of last year, the Florida legislature passed and Governor Ron DeSantis signed, Senate Bill 4D, An Act Relating to Building Safety to address issues related to the collapse. However well intentioned, local Home Owners Associations and building managers are just now beginning to grapple with the massive implications of the new law.
SURFSIDE, FLORIDA - JUNE 24: Search and Rescue personnel work after the partial collapse of the 12-story Champlain Towers South condo building on June 24, 2021 in Surfside, Florida. It is unknown at this time how many people were injured as search-and-rescue effort continues with rescue crews from across Miami-Dade and Broward counties.
According to Greg
Main-Baillie, Executive Managing Director for the Florida
Development Services Group at Colliers, the number is
something like 1.5 million condos operated by 28,000
associations throughout Florida. Main-Baillie expressed
serious concerns about the new law while also being
supportive of the measure. Many buildings have serious
problems, and the state was right after the Champlain Towers
disaster to intervene. But many people who manage and work
with HOAs, including Main-Baillie are concerned with what
Main-Baillie says that HOA boards simply don’t have the skills or capacity to manage major capital projects; he wants to see the state to require professional oversight to avoid fraud and abuse but also to ensure projects are completed and add to safety. Otherwise, he says, existing problems with buildings could be made worse or money could be spent with no results. And when it comes to money, who’s going to pay for all the additional updates to recertify condos in Florida?
In an e-mail, Main-Baillie gave an example of how the new law will impact a typical condo building and owner.
“The construction supply and labor shortage will only increase the dollar amount on what for some are already six-figure special assessments. Case in point, Murano at Portofino, a 37-story, 189-unit tower in Miami Beach is facing a $30 million special assessment, or an average of $160,000 per owner. [One owner] recently posted on Facebook that his first payment for the assessment was $52,525. With more than 2 million residents calling condos home, the implications are far-reaching.”
Kevin Koushel and Martin Schwartz at the Bilzin Sumberg law firm posted a thoroughly researched post entitled, Senate Bill 4-D And The Champlain Towers South Disaster: A Problem In Response To A Problem and it articulates the problems with the well-intended legislation, problems that could create a genuine housing crisis for thousands unable to pay for or finance huge assessments to catch up on deferred maintenance.
“If it remains in substantially the same form as it is now, it may displace thousands from their homes and force statewide condominium terminations. This is due to simple economics. Unit owners in older condominiums on limited or fixed incomes will be unable to afford the increase in assessments brought upon by the new mandates. Financing options may be limited or nonexistent. Any loss of affordable housing stock would also seem to exacerbate the existing lack of affordable housing in Florida.”
The real problem here is nothing new. On the west coast, the problem is earthquakes. There are many old unreinforced masonry buildings that will crumble in a significant and likely seismic event. Government likes to issue fiats when it comes to fixing these problems, and like Florida’s legislature, cities like Seattle simply want the problem to be fixed without identifying who will pay and how. I wrote about this problem in early 2021. The answer to the problem is creating incentives including low interest financing for repairs.
Main-Baillie agreed with me that many buildings stay affordable through deferred maintenance. When repairs are put off, the money saved means lower rents in the case of rental properties and for condo residents, lower monthly assessments. Florida has had an allowance to waive contributions to reserve accounts, and due to the peculiar nature of condo HOA governance, many condo boards want to keep assessments low for themselves and fellow residents, so repairs don’t happen.
With rental properties, this can mean repairs become infeasible for a current owner who ends up selling, leaving tenants behind for a new owner to deal with. This often means having to relocate those tenants because of major overhauls to buildings as well as big rent increases to pay for them.
In Florida, the legislature needs to force the issue with property owners: catch up with deferred maintenance or face consequences. But this stick approach needs to be accompanied with a carrot. The professionals in Florida are warning of a different kind of collapse, a financial one.
When people can’t pay or borrow to pay massive assessments they’ll abandon their homes, leaving wealthy buyers to snap up properties for high resale. That doesn’t help affordability. Backing low interest loans to make repairs would expose the state to financial risk, but with massive increases to interest rates in the loan market, it makes sense for the state to be an investor in making housing not just safe but also affordable.