Developers Apply Lessons Learned From Biscayne 21 Fiasco
As developer-led condo buyouts pick up across South Florida, high-profile blowups offer examples of the pitfalls to avoid and the lessons learned in deals gone wrong, developers and brokers said at Bisnow’s South Florida HOA and Condo Association Series event Thursday.
Understanding the fine print in condo associations' bylaws and declarations as well as communicating and building trust while courting unit owners are critical, they said.
"I think it's always important to learn from things that went poorly," Gregory Togel, principal of Miami Beach-based developer Deco Capital Group, said onstage at the Design Center of the Americas in Dania Beach.
The most infamous example of a deal gone bad is Two Roads Development's attempt to redevelop the Biscayne 21 condo tower in Miami's Edgewater neighborhood. The developer purchased the majority of units in 2022 with plans to turn the tower into a branded luxury condo project.
The condo association then voted to lower its voting threshold, from 100% to 80%, to terminate the 13-story building's condo association — a prerequisite for demolition. Two Roads then proceeded to empty out the building and prepare to knock it down.
But 10 residents who hadn't sold their units filed a lawsuit in 2023 to block the project, accusing Two Roads of illegally lowering the termination threshold. An appeals court sided with the holdouts, and the state's highest court declined to hear the developer's appeal.
In January, Miami-Dade Circuit Court Judge Thomas Rebull ruled that the developer had to restore the waterfront building to its May 2023 condition. Two Roads took out $150M in loans for the purchase and now estimates it might cost $65M for repairs. Two Roads sued the holdouts last month in an attempt to avoid having to perform the work, the Miami Herald reported.
The ordeal underlines the risk of a common development strategy: quietly buying units in an older building one by one in the hopes of eventually owning enough to kick off development.
"Everything is speculative until you hit the termination threshold," Togel said. "Every association has a set of laws about what voting rights for terminating condos are. Until you hit that threshold in terms of the number of people in the building that want to sell, it is speculative."
Deals like this have highlighted the fears of drawn-out litigation, leaving many hesitant to pursue condo buyouts and terminations, even as more condo owners are staring down huge repair bills they might struggle to pay.
The Biscayne 21 developers got snagged on a technicality, and the mistake was seeking to change the termination threshold from 100% to 80% without all of the condo owners present, Togel said.
"In my opinion, Biscayne 21 is a little bit of a special case in that declaration, the document that's basically a contract between and amongst all unit owners," Haber Law equity partner David Podein said. "That declaration had some special language."
In another spoiled deal, Related Group and 13th Floor Investments attempted to buy out the Castle Beach Club, an oceanfront condo building constructed in 1966, but couldn't secure enough unit owners to sell.
Terra swooped in a year and a half later, securing agreements with the majority of unit owners but going head to head with three owners that controlled multiple units. Its offer ultimately expired, another developer's sunk cost.
At a certain point, the numbers to make a development work no longer make sense, Togel said. A major takeaway has been heightened sensitivity to residents throughout the process.
Many have lived in their units for decades and enjoy the proximity to their grandkids and their place of worship. For others, the homes are paid off and they can't afford a mortgage on a new home.
These owners are also typically older and on fixed incomes, making them sensitive to changes in lifestyle, Douglas Elliman real estate agent Jessica Julian said.
"In my experience, empathy goes a long way," she said.
"My strength as a residential real estate agent, obviously, is I know the market and I know what's for the sale," Julian added. "I'm able to sit down with these unit owners, find out what is their motivation, what's important to them, and if that's the question, 'Where do I go?' Then I need to replicate something that works for them."
Despite needing to meet a time frame to get project entitlements for density or height in the redevelopment process, Togel said his firm is careful to ensure residents have time to move out of their units when the buyout is complete.
But to get to a successful buyout, there is one clear denominator, which panelists noted is unifying owners through one broker before pursuing a buyout and termination.
"It's the fear of the unknown, and that's what you need to explore," Blanca Commercial Real Estate Executive Vice President Cary Cohen said. "You need to have honest discussions with every single unit owner on why they're for or against selling."
