'Doom Loop' For Florida Condos Sets In As Key Deadline For Reserve Funding Passes

Pressure continues to build on the owners of South Florida’s aging condos as financial pressures tighten in the wake of the reserve deadline.

The Dec. 31 deadline has passed for condo associations to either have fully funded reserve accounts or plans to do so. Now, as assessments start trickling in, aging and poorly maintained buildings — despite the lack of clear legal consequences for failing to fund reserves — are continuing to face declining values and rising insurance premiums, driving the market toward a financial cliff.

The market is now flooded with aging units. There were 19,000 active condo listings in South Florida at the end of last year, 86% of which are condos 30 years or older, according to an ISGWorld report.

“That inventory just keeps growing every single month in MLS because the people that own those units just want to get out,” ISGWorld CEO Craig Studnicky said in a YouTube video accompanying the report. “The problem is that nobody wants to buy them, and if there are a few people that want to buy them, there certainly are no mortgage lenders that want to lend. So, that inventory is almost useless for us at the moment.”

Peter Zalewski, founder of Miami-based real estate consultancy firm Condo Vultures, refers to this era as the Florida condo association “financial cliff.” Following the deadline, owners who are either unable or unwilling to pay rising maintenance fees risk falling behind as associations — now mandated to enforce stricter financial accountability — tighten their oversight.

“They're forcing the foreclosure. They're forcing the short sales. Those people who still remain in the building have to suddenly pay more to keep the building afloat. Services get cut, and it turns into a doom loop,” Zalewski said. “Think of a plane that's going down, like back in the old school with a propeller. They're kind of circling before they crash.”

Senate Bill 4-D, enacted in 2022, mandates that condo owners in buildings three stories or higher and 30 years or older contribute to reserve funds and undergo structural evaluations every 10 years. The law was aimed at improving building safety after the 2021 Surfside condo collapse that killed 98 people.

While the deadline was Dec. 31, the deluge of associations that need inspections has led to waiting lists, so the law allows them to waive payments or reduce reserves one final time this year if condo associations can gain approval from a majority of their owners, the Miami Herald reported.

But the looming threshold has put older buildings on the chopping block since the law passed. Approximately 90% of the 1.6 million condo units in Florida are 30 years old or older, WLRN reported, creating a wave of financial instability across the state as buildings struggle to meet the demands of aging infrastructure and increased upkeep costs.

To try and bring some relief, Gov. Ron DeSantis called for a special legislative session earlier this month to address the complaints from Florida condo owners about the financial burdens imposed by the law, the Herald reported. But leaders in the state legislature argued the issue should wait until the regular session in March, citing the need for more information and expressing concerns about weakening the safety measures intended to prevent future tragedies.

While condo owners are still trying to fully grasp what the deadline entails, they are already facing the consequences of increased insurance premiums, said Jaime Sturgis, CEO and founder of Native Realty Co.

Since June 2022, the cost to insure condo units rose by 27.7%, from $1,342 to $1,715, and costs have increased by 103% for condo associations, the South Florida Sun Sentinel reported in September.

At the same time, the value of older condos is plummeting.

The average sale price for older condos dropped 21% last year from 2023, significantly fueled by the special assessments required by the new law, according to an October study by ISG World.

Zalewski told Florida Daily that older condos are expected to drop in value by 38%, from $379 per SF to $231 per SF, in the next few years.

Before the deadline, Sturgis said the company’s residential division was receiving four to six calls a week of people looking to sell their condos at what would have been a reasonable price if it weren’t for the circumstances.

“A lot of those condos are selling for a fraction of what they would have just a couple years ago,” Sturgis said.

The number of Miami-Dade townhouses and condos on the market with an asking price below $100K doubled last year, while the number of listings at $1M and higher rose by just 25%, according to Miami Realtors data.

As insurance and maintenance costs continue to climb after the deadline and the value of these units continues to decline, financing for these aging properties becomes increasingly difficult. Banks are reluctant to lend on older condos, reducing the pool of potential buyers.

“Banks don't want to lend on them because they don't have the appropriate reserves in place,” Sturgis said.

Following the deadline, land buyouts are beginning to seem like a more practical solution.

Last month, Springbrook Gardens, a 77-year-old waterfront condo complex in Fort Lauderdale, went up for sale just three months after residents were evacuated due to structural concerns.

The 18-unit building racked up a $4.5M repair bill. The unit owners voted to sell due to the massive bill, listing the property — zoned for 45 residential units or 58 hotel rooms — for $23M.

But forced sales and foreclosures may become an increasingly common outcome, as a large number of condominiums have reached functional obsolescence, Bilzin Sumberg attorney Joseph Hernandez said.

The attorney, who represents developers and investors in condo redevelopment and bulk acquisitions, said it will take time for owners to come to this realization. As they rush to complete their structural integrity study, they will start to grasp the severity of the situation and will likely begin urgently seeking a developer to buy them out.

This may be the only viable option for condo owners, but while their units depreciate in value, the land beneath them may give them an escape route.

“That could be the saving grace for those unit owners because even though they're building, nobody wants their units anymore,” Hernandez said. “But their land is very valuable.”