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.
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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
happens next.
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.