Article Courtesy of The Tampa
By SHANNON BEHNKEN
Published April 19, 2008
TAMPA - Shane Mummery and dozens of his
neighbors are on the verge of losing their homes - and they face hefty
losses on their investments.
They haven't missed mortgage payments, and
they don't want to sell. But none of that matters.
Mummery and his neighbors own units in a
New Tampa complex that failed as an apartment-to-condominium conversion.
The 396 units in Portofino were put on the market as condos in 2006, but
the developer sold just 31 of them. Last July, an apartment management
company bought the rest of the units. Now, that company wants to terminate
the condominium, buy out the individual unit owners - at today's lower
market rate - and convert the whole complex back to apartments.
And, apparently, the condo owners may have
little say. A revised Florida statute and provisions in the original
condominium declaration make it easier for the developer to force owners
What's happening at Portofino is a new
twist in the real estate crisis sweeping the nation, but experts say it's
likely the beginning of a trend in states such as Florida, where more
apartment units sold as condos than in any other state. Thousands of these
complexes have fizzled as condominiums. Other companies already are trying
to terminate various Florida complexes, real estate attorneys say.
For Mummery, it doesn't seem possible.
"It was my interpretation that you buy
property and no one has the right to take it from you as long as you make
your payments," Mummery said. "I can't imagine being told by a
court that you must sell, and you must lose money."
Alan Pollack, an owner of the company,
Chicago-based Providence Management Corp., said he understands the owners'
plight but thinks it's in everybody's best interest to turn Portofino back
into an apartment complex.
"We're not kicking anyone out of their
homes," Pollack said. "They can live there forever, they just
have to rent."
Thousands Of Apartments Have Reverted
In the Tampa Bay area, dozens of converted
apartment complexes are half empty. Since 2004, nearly 29,000 apartments
were converted to condominium units in Hillsborough, Pinellas, Pasco and
Hernando counties, according to New York-based research firm Real Capital
Analytics. That's the third highest of all metro areas in the nation. Only
the metro areas of Miami-Palm Beach and Orlando have more.
So far, 3,500 units in the Tampa area have
reverted to apartments, according to the research firm. Several of the
conversion companies have gone bankrupt or let complexes fall into
foreclosure. In many cases, the people who purchased units are living
among a sea of renters.
Donna Berger, a condominium lawyer with
Katzman & Korr in Fort Lauderdale, said the Portofino situation is an
"unintended consequence" of an amendment to a Florida statute.
The revision, she said, was supposed to help owners terminate a
condominium more easily in extreme cases, such as when a hurricane
destroys the complex or makes it impossible to run it as a condominium.
"This is the flip side of the
statute," Berger said. "I don't think this is what legislators
intended. This definitely opens the door for more condo conversions to be
State law used to require 100 percent of
condo unit owners to approve before a condominium could be terminated. The
statute was amended in July to require only 80 percent of the owners'
approval, unless 10 percent vote against termination.
The 10 percent addition was intended to
protect condo owners from developers swooping in and taking over, said
Gary Poliakoff, of the Fort Lauderdale firm Becker & Poliakoff. But in
the case of converted apartments that failed as condominiums, he said,
it's possible for developers to acquire enough units to force the
At Portofino, the condominium declaration
states that once the condominium is terminated, approving owners can buy
units from disapproving owners at "fair market value."
Now that the real estate market is in steep
decline, fair market value means owners may be out tens of thousands of
dollars compared to what they originally paid for their units. When the
condominium is actually terminated, independent appraisers and an
arbitrator could help determine the value.
Armed with the statute and the condominium
declaration, Pollack said his company is following the laws and exercising
its rights. Officials at Providence Management knew about the statute and
the document's wording in July when they purchased the 365 units for
$120,000 apiece, Pollack said.
Providence Management has two other
projects in St. Petersburg, but neither is similar to Portofino. The
company owns Lakeside Village Apartments, which it is rehabbing, and the
former Plaza Fifth apartment building. Pollack said it is doing extensive
rehabilitations and plans to call the finished building Skyline.
Pollack said he understands why condo
owners would be upset about losing money but said everyone will be better
off in the long run if the owners "cut their losses now."
"If only 10 percent of the units are
owned and everything else is rental, how will anyone get anything out of
their investment?" he said.
The company plans to terminate the
condominium soon and is trying to buy as many units now as possible, he
said. It has been successful with three sales so far; all three sold in
January for $127,000 each, according to the Hillsborough County Property
Appraiser's Office. Condominiums at Portofino originally sold for an
average of $150,000.
Owners Say They Will Lose Thousands
For the past few months, Pollack has
contacted owners and made offers by phone. Mummery said he was told future
offers on his one-bedroom condo would be lower and that he should sell now
to get the most money.
Mummery said he would lose at least $16,000
on a sale to Pollack and would likely go into foreclosure.
Stanley Romanek said he paid $175,000 for
his unit in October 2006 and was told at the time that the complex was
nearly sold out. "I bought at the peak of the market," he said.
"I have a lot to lose." Romanek said he hasn't been made a
concrete offer yet.
Jitendra Sutaria sold his unit to Pollack's
company in February and said he lost $15,000 on the deal. He said he felt
intimidated and thought the state statute and condominium documents were
stacked against him. If he waited to sell, he said he feared he would lose
even more money.
Raymond Burger, a Tampa lawyer representing
Mummery, said he thinks forcing the Portofino owners to sell is against
their constitutional rights.
"Just because something is written in
the condo declaration, doesn't mean it's legal," he said.
The courts may work out any legal issue,
but for now, the statute appears to allow what's happening at Portofino,
said Jon Peet, chief of compliance for the Florida Division of Land Sales,
Condominium and Mobile Homes.
Peet said he is aware of only one other
converted condominium in circumstances similar to Portofino.
The developers of Eden Condominiums in Boca
Raton sold condominium units in one of its four buildings and planned to
upgrade the others. But now that the market has changed, the developer
wants to convert the complex into an assisted living facility, said Steven
Platzek, an attorney for several of the condo owners.
The developer has made offers to some unit
owners, Platzek said, but none have closed. Some of the owners are upset
the developer didn't finish the project as planned.
He said he also thinks the amended statute
opens the door for other condominiums to be terminated by developers.
"The statute gives the developer the
opportunity to exploit their position as the majority unit owner," he
Pollack, of Providence Management, said
Portofino is the company's first project to revert condos back to
apartments but said it is actively scouting failed conversions that would
make good investments. He said he thinks other companies are looking, too.
The process of buying condominium
conversion is complicated, he said. But if the company can buy now, while
the real estate market is soft, it will pay off later when the market
"Some view these complexes as a
headache," Pollack said. "I view them as opportunities."
FORCED TO GIVE UP CONDO -- AS PREDICTED BY ACTIVISTS