MIAMI – A condominium
development trend that was already unfolding prior to the
horrific Champlain Towers tragedy in Surfside – the legal
termination of older condominium communities and buyout of
all the unit owners to make way for new construction – is
now becoming a movement in South Florida real estate
redevelopment.
More owners of units in aging condo communities near the
water are receiving offers from industry-leading developers
than ever before, and some of these offers are coming just
as the 40- and 50-year recertifications for their aging
condominium towers come due.
The costs for repairs, even at the 40-year mark, can be too
much for many unit owners to afford. Some associations’
financial reserves are woefully inadequate, or even
nonexistent, so they would need to impose significant
special assessments to pay for major repairs.
In such cases, offers that are sometimes two to three times
over market value for each unit can become a very appealing
exit strategy for owners, and Florida has a legal mechanism
for such condominium terminations that has proven to be
effective. Terminations led to the development of the
Armani/Casa tower in Sunny Isles Beach and the Una
Residences now under construction in the Brickell area.
For developers, the math is even simpler than that of the
unit owners. Once the value of the land for redevelopment
becomes greater than that of the combined property values of
all the existing units in a community, a condominium
termination presents a fruitful opportunity.
In a market with little undeveloped waterfront properties,
combined with the recent influx of well-heeled new
residents, offering to purchase all a community’s units in
order to demolish a building and raise a new one presents a
potentially lucrative development option.
Developers in the state are already setting their sights on
a fast-growing list of target communities.
Depending on the language of the governing documents for a
community, condominium terminations in Florida require very
high approvals ranging from 80 to 100% of all the unit
owners. Needless to say, achieving that level of buy-in from
property owners is a daunting task for developers, which
also often face competing offers from other condominium
builders.
However, decisions between moving forward with significant
special assessments to restore and repair an aging
condominium tower versus offers of three times the value of
one’s unit are giving owners a lot to ponder.
Serious proposals from major developers in communities that
may be right for termination and redevelopment require
careful consideration. This usually begins with the unit
owners meeting with those presenting offers to hear their
proposals and initiate the vetting process. The engagement
of experienced real estate and legal professionals for the
ensuing negotiations is also highly advisable.
Ultimately, it will be up to each individual owner to decide
what is in their best interests.
Terminations require many months to complete, and those that
are contested could take as long as several years. Plus,
there will always be matters for negotiation, such as how
long owners will be allowed to continue residing in their
units after the termination is completed, what costs will
each owner bear, what to do with existing tenant leases, and
others.
Condominium terminations can be contentious, and they often
stir up controversy. Today, the developers that are
successfully acquiring sites through terminations are
generally paying way above market value to secure the buy-in
of as many owners as possible to obtain the required
termination approval.
For those communities that check all the boxes for
termination, there may never be a better time than now for
unit owners to unite behind one offer and strike the best
possible deal.