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A ‘Come To Jesus’ Moment Looms For Owners Of South Florida’s Aging Condos

Changes to the laws governing condo associations and reserves have the potential to reshape the oceanfront skylines across South Florida, but a wide gulf between buyers and sellers is holding back that transformation. 

“It’s really going to take a come to Jesus time until they realize that there isn’t a pot of gold at the end of the rainbow,” Edgardo Defortuna, one of the region's most prolific developers of condominiums, said at Bisnow’s South Florida Condo Summit last week.

Florida State Sen. Ana Maria Rodriguez, Condominium Advisory Group’s John Cadden, Fortune International Group’s Edgardo Defortuna, The Castle Group’s Will Delgado and Bilzin Sumberg’s Joe Hernandez at Bisnow’s South Florida Condo Summit on April 11, 2024.

Condo owners are beginning to face the reality of a law passed in 2022 that requires structural integrity studies and compels condo associations to set aside money for repairs. 

The new rules are bringing massive repair bills and threatening the viability of maintaining some older buildings, which has portended a wave of buyouts from developers. But many condo owners and associations have yet to confront that reality.  

“There are some who are incredibly proactive, they started looking into this the moment the legislation started to come out immediately following Surfside,” Will Delgado, president and chief operating officer at The Castle Group, said in reference to the collapse of the Champlain Tower South that killed 98 people and spurred the new laws.  

“Then you have the laggards, those who you’ve got to pull along,” said Delgado, whose property management firm specializes in condo buildings. “They don’t want to acknowledge the reality, quite frankly, and they’re going to face that here very soon.”  

Condo owners will have to confront the issue by year’s end when the new law goes into effect. 

Some have already begun grappling with massive one-time assessments or increases to association fees. Developers and professionals serving the condo community swapped stories from the stage at the Hyatt Centric Fort Lauderdale of special assessments reaching into the tens of millions of dollars. 

Condo owners at some properties have committed to repairs that can cost more than $100K per unit. While those costs are feasible for some owners, the assessments have left others looking for a developer to buy them out of their units to redevelop the property.  

A cottage industry of commercial brokers representing condo buyers is flourishing, but developers say they can set price expectations so high that deals become infeasible.  

“The commercial brokers that are trying to represent some of those condominiums, they set up a price that is sort of artificial. They multiply the market value by two and convince the board of directors to go out to market at that price,” said Defortuna, the CEO of Fortune International Group who has been dubbed the “condo whisperer.”

The value the brokers promise to owners becomes the lowest price that they’re willing to accept, and individual owners try to extract more for their units because of investments they’ve made, like remodeling a kitchen or a bathroom, he said. 

“Unfortunately, it doesn’t do anything for me because we’re going to knock down this building,” Defortuna said. 

The Continuum Co.’s Alexandra Eichner, FirstService Residential’s David Diestel, Integra Investments' Nelson Stabile, Flag Luxury Group’s Dayssi Olarte de Kanavos, Two Roads Development’s Brad Meltzer and Vaster’s George Fraguio discussed the changing taste of condo buyers in South Florida at the event.

The properties that have interested buyers tend to be near the ocean, where developers can afford to pay double the unit value with plans to demolish the building and replace it with a luxury tower. That leaves a large inventory of inland properties where owners have little choice but to pay for repairs because there is no developer waiting in the wings to take the property from them.

“The reality is, if you’re in a property that’s worth more terminated than it is staying a condo, you at least have an option, you have a way out,” said John Cadden, managing principal at Condominium Advisory Group. “You may not want to take it, your constituents may want to stick it out, but just first having that option puts you in rarefied air.”

Local governments and Florida lawmakers have tried to create programs to give those landlocked condo owners access to capital to repair their properties. Ana Maria Rodriguez, the state Senator for Florida’s 40th District which includes south Miami-Dade County and the Florida Keys, highlighted several programs the legislature created this session to alleviate some cost pressures. 

She pointed to the My Safe Condo program, created this year as an extension of the My Safe Florida Home initiative, which offers up to a $175K grant to a building to fund repairs. 

“It’s not a lot, but it’s something,” she said, adding that Miami-Dade County has its own program that allows condo owners to borrow up to $50K each to fund repairs from special assessments.    

Rodriguez conceded that the changes to the state law were creating cost pressures for condo owners, but she said the bills coming due now are the result of years of deferred maintenance as condo owners opted to keep association fees low rather than make repairs. 

“A lot of these buildings, including Champlain Tower South, had problems with regards to their reserves and waiving reserves for decades,” she said. 

The realities of large assessments or increased association fees are starting to dampen the condo sales market. Prices peaked in the first half of 2022, and sales volume has been declining ever since. Joe Hernandez, a partner at Bilzin Sumberg who works on condo litigation and buyouts, said he’s recently seen prices begin to fall. 

New research also shows that sales have been buoyed by new construction, while existing luxury condos frequently languish on the market.

More than 72% of existing Miami condos listed for more than $2M went unsold from September 2023 through February 2024 and were pulled from the market after an average of 111 days, according to an analysis of MLS data from Agent Story, a website that provides reviews of brokers. 

Condos priced between $1M and $2M fared slightly better, but 62% remained unsold before being pulled off the market after an average of 90 days.

Marsh’s Matthew Maffai, Brickeye’s Alex Fuentes, Mast Capital’s Carlos Casal, Berkshire Hathaway Speciality Insurance’s Robert Tricamo, The Related Group’s Andrew Cohn and Desimone Consulting Engineering’s William O’Donnell discussed insurance solutions at the event.

Some condo associations are confronting reality by attempting to ease the friction that comes with a buyout. Florida law typically requires at least 80% of unit owners to agree to terminate a condo association and clear the way for a developer to demolish a property.

Developers approach buyouts by either attempting to acquire a critical mass of units that would allow them to terminate the association or by going through an association to present an offer to all owners at once. To help ease the process, some condo boards are securing authorization commitments to terminate an association before going out to market in a bid to make their property more palatable to a buyout, Cadden said.

“These termination plans have certain conditions in them. Sometimes it's a minimum price,” he said. “Getting there is a whole different story, because we have to get good data for them to understand that, no, your property is not worth a billion dollars.”

The older properties that developers are looking to buy may not be worth ten figures, but for the prime oceanfront parcels, that is exactly how much the developments slated to rise in their place will likely cost. 

Today’s market reality of high construction, material and financing costs necessitates luxury development to make deals financially viable, developers say. The oceanfront towers being proposed in Miami today frequently have luxury brands attached to them, with units starting well above $1M.

Alexandra Eichner, who leads South Florida operations for New York-based Continuum Co., said the Miami condo market is split evenly between domestic and foreign buyers who are demanding a luxury feel to even close on a pre-sale. 

“The buyers are coming here and we're actively looking for ways to show them an experience,” she said. “The concept of virtual reality doesn't cut it anymore.”  

The types of units being built are driven by the buyer profile, which for new construction leans heavily into high-net-worth individuals from high-tax states who are bringing their extended families or “coming with entourages,” said Dayssi Olarte de Kanavos, co-founder of New York-based Flag Luxury Group. 

While a wealthy new arrival from out of state may be able to afford a mansion, it’s unlikely to be oceanfront, and transplants from other states want to be able to “put their feet in the sand,” she said, creating demand for expansive units in oceanfront towers. 

“We really believe in the sky mansion concept,” she said. “The biggest interest that we have right now is on those larger units with swimming pools, terraces and incredible views.”