Buyers seeking warm
weather and the amenities of oceanfront living have often
sought out more affordable units in older buildings along
South Florida’s waterfront. But now the supply of those
condos may be dwindling.
Developers, facing
little to no inventory of undeveloped waterfront land, are
increasingly targeting bulk buyouts of these buildings. And
unit owners are more likely to embrace those offers,
especially in the wake of the Surfside collapse of Champlain
Towers South that killed nearly 100 people.
Although an official cause of the collapse has not been
identified, unit owners and the condo association were aware
of critical structural problems, including leaks in the pool
deck and cracks in the concrete. The building had just begun
$15 million in major repairs required to receive its 40-year
recertification.
The collapse triggered
Miami-Dade County, various cities and individual buildings
to order inspections of older buildings, prompting condo
associations to deal with issues they may have previously
ignored or delayed indefinitely. If they don’t, their
building may be declared unsafe and ordered evacuated, with
residents unable to return until properties are brought up
to code. |
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But not all unit
owners can afford the often costly repairs. Enter developers
who can offer bulk buyouts above market value. Since the
collapse, investors have been identifying buildings to bid
on, and industry experts predict deals will surge once more
structural and engineering reports come in.
The price a developer is willing to pay is determined by the
project that can be built on the site. Still, the more
divided unit owners are, the less likely they are to come to
an agreement. And while developers will likely offer more to
a unit owner than an individual buyer might, it may not be
enough for the seller to afford a similarly located and
sized condo, especially in today’s market.
However, the unit owners also are unlikely to be able to
afford repairs if they want to stay.
“We’re not talking about putting film on windows. We’re
talking about foundations and rebar. It’s going to be very
expensive,” said Bilzin Sumberg attorney Martin Schwartz.
“You can tell people they have to be in a safe building, but
where are they going to get the money from?”
Florida law requires more than 95 percent of unit owners to
agree to terminate a condo association, which can be a
challenge for bulk investors looking to redevelop a
property.
“You’re not dealing with one seller. You’re dealing with
multiple sellers,” said Taylor Collins, a principal at Two
Roads Development, which just completed its first bulk
buyout. “It’s a very emotional process. A lot of times,
people realize the building is at the end of its life.”
Recent deals
Two Roads brought in the Related Group as a joint-venture
partner to acquire Carlton Terrace, an oceanfront condo
building in Bal Harbour. They paid about $130 million for
the 88-unit building this summer. But the partners were not
the first developers to attempt the deal. Carlton Terrace
had been on the receiving end of roughly 10 offers over the
years, sources say.
To find these deals, developers are tracking the market. Two
Roads has a map of buildings that are 30, 35 and 40 years or
older on the water in Miami-Dade and Broward counties, with
a zoning map overlaid to determine what can be built on the
property, as well as the price it is willing to pay unit
owners to acquire the building.
“Sometimes, if we really like a building and think it’s
going to come to market in three to five years, we’ll start
buying units today,” Collins said.
Mast Capital, a Miami firm led by Camilo Miguel Jr., paid
more than $100 million to acquire La Costa, a 124-unit
oceanfront building in Miami Beach starting in May, with
plans for a luxury condo tower on the site. After the June
collapse in Surfside, the La Costa building was declared
unsafe by Miami Beach and was ordered evacuated.
Following the collapse, developers may have an easier time
convincing unit owners to sell, experts say.
“The sales pitch is enhanced, unfortunately, by the safety
factor,” said attorney Bill Kramer of the law firm Brinkley
Morgan. “If you’re living in a $200,000 condo and it’s going
to cost $100,000 in repairs, could you possibly afford it?
It kind of doesn’t make sense.”
Insufficient reserves
Multimillion-dollar estimates for major repairs don’t come
out of thin air. Condo associations, under pressure to keep
monthly fees low, will often defer maintenance and postpone
projects. Florida law allows associations to waive funding
reserves for projects greater than $10,0000 by a simple
majority.
“That’s why you hear of huge special assessments to fix the
things they knew they would have to do,” Kramer said.
He and others expect the law regarding reserves will
eventually change. Since the Surfside collapse, a number of
buildings have hired firms to complete reserve studies.
“The reality is there has never been a total regulation of
these buildings to actually make the repairs. It’s very
likely that as associations are being forced to make
repairs, they are not going to be able to,” said attorney
Keith Poliakoff of the Fort Lauderdale-based Government Law
Group.
Oceanfront properties, especially, are on the receiving end
of “tremendous wear and tear,” Schwartz said. And many of
the owners in older buildings have fixed incomes.
Divided house
David Cohen, an executive at the property management firm
AKAM, said that the challenging part of a buyout is still
getting enough unit owners on board, calling it a “public
relations battle.”
Longtime Related executive Carlos Rosso, who left the firm
last year, is familiar with the process. Rosso owns units at
Bay Park, a waterfront building in Edgewater that is dealing
with two offers from competing groups, each for $150
million.
“For elderly people who have lived in these buildings for
such a long time, it can be a very traumatic experience,
particularly accelerated with what happened with Champlain
Towers [South],” Rosso said, citing both the financial and
emotional aspects.
Sellers will have to change their lifestyles in many cases,
giving up their waterfront views and communities they’ve
built with their neighbors.
“It takes time, a lot of patience, but at the end of the
day, it’s the reality,” Rosso added. “And I think people
need to take advantage of this hot market and move on. As
they say, you never go broke on profit.”
At Bay Park, a 254-unit building that was constructed in
1961, unit owners are facing roughly $10 million in concrete
restoration work and other repairs required to bring the
13-story building up to code.
Both Bomel Companies, a Los Angeles developer, and
Miami-based Aman Group, a firm led by investor Vivian Dimond,
are trying to convince unit owners to sell. Bomel has
secured contracts with about half of the owners, but that
deal wouldn’t close unless it gets more than 95 percent of
unit owners.
The building is emblematic of the dilemma individual owners
of older properties are facing. Some don’t want to sell and
would pay to make the necessary repairs. Others can’t afford
the repairs. And some are investors looking to make a
profit. But unless they come together, a bulk deal won’t
happen. And if they don’t complete the restoration work, the
city could eventually shut Bay Park down.
“People are going to be more reluctant to stay in these much
older buildings that have deferred maintenance issues,
particularly when they are the target of a condo
termination,” said Berkadia broker Scott Wadler. “They may
be more incentivized to walk away, to sell their unit.”
Condo associations are increasingly hiring brokers and
property management firms to streamline the process and
avoid bidding wars that divide sellers.
Mika Mattingly, a Colliers broker, is working with broker
and investor Arden Karson on condo termination deals,
encouraging owners to be a “united force, because that’s
where you have the most bargaining power,” Mattingly said.
“Developers will really appreciate that because they don’t
have to scramble later.”
In some cases, sellers can double the market value of their
units by banding together, Karson added.
“They’re not building any more beachfront. If you want to be
in prime locations, you’ve got to look at these older
buildings that have run their useful life,” said Collins of
Two Roads. “You’ll never get a higher price. If you come
together and sell it to a group as a developer, you’re going
to hit a home run.”