Luxury condominium Board of Directors and General Managers (CAMs) need to at least be aware of a tangible, rising trend in South Florida: Developers targeting condominiums over 25 years old as buyout investment opportunities.
The process is called "condominium termination," and the rules and thresholds are all unique and directly dependent on the individual Declaration of Condominium of a particular property. Essentially, if a developer ultimately gains ownership of a large percentage of all the units in the condominium, that developer gains legal rights to control the Association which may lead ultimately to terminate the condominium to tear it down and rebuild.
Not every condominium approaching or beyond 25 years of age is at risk of this situation. Still, all condominium Board of Directors and unit owners should have a clear and realistic understanding of four critical data points: 1) their current Reserves cash on hand, 2) reliable estimates and inclusive proposals of any upcoming, required structural and concrete restoration project management, planning, and construction costs, 3) the average dollar amount of potential Special Assessment needed per unit owner to cover the required restoration estimates, and 4) how does that figure compare to the average market value of each unit, which could be sold in the open market by the unit owner.
Every situation is unique. In certain cases, the math will simply not make sense for unit owners to move forward with the looming restoration costs to stay compliant with the new structural integrity legislation and new requirements.
Michael Gongora, a prominent condominium association attorney and litigator in Miami Beach with Becker & Poliakoff, expounds on the important details involved:
"Florida Statute Chapter 718 allows for an optional termination with a vote of 80 percent of the unit owners, but it also enables five percent or more of the owners to block a termination from proceeding by rejecting it in writing or via a negative vote. Many condominium associations are facing economic pressures due to increased insurance costs and certification and other maintenance requirements. As associations consider these costs, along with the new statutory prohibition against waiving reserves going into effect in 2025, they may be more open to a buyout by Developers."
"Since real estate prices have escalated significantly since the pandemic started and land is limited in South Florida, many developers are actively eyeing buildings with deferred maintenance to make purchase offers geared towards termination. There are now several coastal buildings in South Florida actively engaged in or considering termination offers. As there are number of legal issues involved, it is important to consult with legal and other professionals when considering an association termination."
The Wall Street Journal last week featured a specific Bal Habour condominium, where all of its unit owners were facing a process of termination by developer interest. Read the full article below:
EDITION Residences Fort Lauderdale Breaks Ground
