The tri-county’s white
hot real estate market is prompting developers to take stock
of the region’s older beach front high-rises as potential
buyout candidates for redevelopment. While not new, the
trend has taken on greater importance as vacant land
disappears and more out-of-state residents move to South
Florida in search of luxury digs.
Owners who would not have given a thought to selling
previously are now taking the idea of moving seriously when
confronted with lofty buyout offers, industry analysts and
attorneys say.
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In Pompano Beach, The Related Group recently bought out the owners of all 49 low-rise units at the Beach Villa at 900 North Ocean Drive. The complex was built in 1978. The company recently won city approval to rezone the property so it can build a 21-story luxury tower in the Beach Villa’s place.
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In Miami Beach, owners of the Castle Beach Club, a circa-1966 17-story high-rise on Collins Avenue, received so many unsolicited offers from various unidentified suitors that they hired Colliers, the real estate services firm, to sort through them.
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In Sunny Isles Beach, Related Group and Dezer Development are celebrating a 99% sellout of their sleek new 55-floor Armani/Casa luxury tower . The project, which broke ground in 2016, came after the developers took over a site that was home to the decades-old Seashore Club, a low rise complex of 170 units, which they bought out.
Although the latter
deal was roughly five years ago, it’s emblematic of how new
upscale condo projects are increasingly displacing
long-standing residential sites whose early years are
distant memories.
“It does seem to be a growing trend,” said Gerard Yetming,
executive managing director of Colliers, the real estate
services company. “Really there are very few opportunities
to build a new high-rise somewhere as desirable as on the
beach.”
How it works
Yetming said the obvious attraction for owners selling their
older units is the premium prices developers are willing to
pay for them.
“They begin to realize this is something we should explore
in an organized fashion,” Yetming said. “It is only with the
right collective goals and an adviser where you can get
something done.”
He said there a lot of buyout initiatives you don’t hear
about. Many fail, he said, amid bidding wars or internal
disagreements over whether a sale should occur in the first
place. It always takes a consensus among the unit owners to
move forward, he said.
“These are more the exceptions than the rule,” he said of
the successful buyouts.
“This is not for every building,” Yetming added. “There are
a lot of buildings that were well built and well located and
well run that are probably not good candidates. There needs
to be a very specific set of circumstances for these deals
to work.”
Once an older building is acquired, the time from sale to
the construction of a new project runs from 18 to 24 months,
said Eric Fordin, managing director of Related’s condo
division.
“After the buyout happens it takes anywhere from 6 to 9
months to obtain site plan approval,” he said. “Then, the
sales and marketing process varies per market but generally
takes 6 to 9 months as well. From the time we release
construction documents to obtaining a permit generally takes
12 months as well.”
The Champlain Towers factor
Some sales drivers include the rising cost of maintenance
for the buildings.
For years, members of many condo associations have deferred
repair projects because of their expense. A potential
consequence of deferred maintenance came into sharp relief
after the terrifying collapse of the Champlain Towers in
Surfside, which took 98 lives.
The disaster caused a major ripple effect of concern among
residences of other older buildings along the Gold Coast.
“The Champlain Towers incident really, really is pushing
this trend,” said Joseph Hernandez, partner and chair of the
real estate practice group at the Weiss Serota Helfman Cole
& Bierman law firm in Coral Gables.
“The trend’s been going for some time,” he said. “I’ve been
doing these transactions for 10 years. The trend really
started because we’re getting into the period where condos
developed in the ‘70s or ‘80s are becoming functionally
obsolete.”
“Now people are much more in tune to the issue,” Hernandez
said. “They’re focused on trying to band together and sell
their property in a way they weren’t before.”
He added that he’s seen “probably a two- to threefold
interest in these transactions in the past year since
Champlain Towers.”
“Normally I work on a couple of these transactions” each
year, he said. “I’m working on seven or eight major
transactions right now.”
Prime prices for prime properties
Still, it’s bottom-line economics that decides whether a
deal will materialize, asserted Yetming of Colliers.
“The only time this makes sense is when the value of the
underlying land is significantly more than what the
collective units are currently selling for,” Yetming said.
“Why else would somebody want to sell their property unless
they can make a significant profit?”
Jamie Sturgis, founder and CEO of Native Realty Co. in Fort
Lauderdale, said “all-time records” are being paid for
multi-family buildings as new residents arrive in South
Florida from out-of-town and out-of-country.
“I would say the vast majority of the sites being targeted
are on the beach, in light of what happened in Surfside,” he
said.
Many owners are snowbirds who see this as “an opportune time
... to cash out at the top of the market and avoid having to
pay these special assessments” for heavy repair projects in
older buildings.
Nick Perez, a vice president at The Related Group, said the
Beach Villa owners in Pompano sold after realizing they
could double or even triple their money against their
original purchase prices.
“Ultimately it was the price they were getting for their
units,” Perez said. “I would say they were getting well
above their market price for their units. No one has to
sell. Luckily, I was the only one trying to acquire all of
the units and I didn’t have a bidding war.”
He said he met with 26 or 27 of the 49 owners.
“There was a little bit of hand holding,” Perez said. “They
didn’t want to leave the beach.”
Some wondered where they would live next. Related is
allowing the sellers to stay through the end of winter
season.
“The ultimate deciding factor was if they were to sell to
another end user versus the offer I was proposing, they
would have gotten a substantially less amount of money,” he
said.
Perez did not provide any sales figures.
But sales data unearthed by Zillow, the national online real
estate research and investment firm, found some owners
received up to $800,000 for their 302-square-foot, one-bath,
one-bedroom units with market values just below $200,000.
It’s not hard to understand the attraction for Related. The
3.07-acre complex of one- and two-story buildings is located
right on the beach between the Atlantic Ocean and State Road
A1A. The property offers significant green space and a
community pool in the back.
In its place: Related is planning a 21-story, mixed-use
luxury condominium tower with 119 condo units and
approximately 2,200 square feet of commercial space,
according to a filing with the City of Pompano Beach.
A short distance to the north, Related is building another
luxury high-rise called the Solemar, which the company says
is 99% sold.
The swift sellout, the company says, is an example of the
white hot demand for beachfront property.