By Oscar R. Rivera
Pressured by high repair costs, more owners of older condos may welcome developer buy-out offers if the land’s value outweighs that of all the individual properties.
MIAMI – A condominium development trend that was already unfolding prior to the horrific Champlain Towers tragedy in Surfside – the legal termination of older condominium communities and buyout of all the unit owners to make way for new construction – is now becoming a movement in South Florida real estate redevelopment.
More owners of units in aging condo communities near the water are receiving offers from industry-leading developers than ever before, and some of these offers are coming just as the 40- and 50-year recertifications for their aging condominium towers come due.
The costs for repairs, even at the 40-year mark, can be too much for many unit owners to afford. Some associations’ financial reserves are woefully inadequate, or even nonexistent, so they would need to impose significant special assessments to pay for major repairs.
In such cases, offers that are sometimes two to three times over market value for each unit can become a very appealing exit strategy for owners, and Florida has a legal mechanism for such condominium terminations that has proven to be effective. Terminations led to the development of the Armani/Casa tower in Sunny Isles Beach and the Una Residences now under construction in the Brickell area.
For developers, the math is even simpler than that of the unit owners. Once the value of the land for redevelopment becomes greater than that of the combined property values of all the existing units in a community, a condominium termination presents a fruitful opportunity.
In a market with little undeveloped waterfront properties, combined with the recent influx of well-heeled new residents, offering to purchase all a community’s units in order to demolish a building and raise a new one presents a potentially lucrative development option.
Developers in the state are already setting their sights on a fast-growing list of target communities.
Depending on the language of the governing documents for a community, condominium terminations in Florida require very high approvals ranging from 80 to 100% of all the unit owners. Needless to say, achieving that level of buy-in from property owners is a daunting task for developers, which also often face competing offers from other condominium builders.
However, decisions between moving forward with significant special assessments to restore and repair an aging condominium tower versus offers of three times the value of one’s unit are giving owners a lot to ponder.
Serious proposals from major developers in communities that may be right for termination and redevelopment require careful consideration. This usually begins with the unit owners meeting with those presenting offers to hear their proposals and initiate the vetting process. The engagement of experienced real estate and legal professionals for the ensuing negotiations is also highly advisable.
Ultimately, it will be up to each individual owner to decide what is in their best interests.
Terminations require many months to complete, and those that are contested could take as long as several years. Plus, there will always be matters for negotiation, such as how long owners will be allowed to continue residing in their units after the termination is completed, what costs will each owner bear, what to do with existing tenant leases, and others.
Condominium terminations can be contentious, and they often stir up controversy. Today, the developers that are successfully acquiring sites through terminations are generally paying way above market value to secure the buy-in of as many owners as possible to obtain the required termination approval.
For those communities that check all the boxes for termination, there may never be a better time than now for unit owners to unite behind one offer and strike the best possible deal.
© 2022 Miami Herald. Distributed by Tribune Content Agency, LLC. Oscar R. Rivera is the managing shareholder of the Coral Gables-based law firm of Siegfried Rivera and heads the firm’s Real Estate Law Practice Group.
