MIAMI — Big changes are coming to Florida's condo market.
Developer Ian Bruce Eichner calls it "the most significant impact on waterfront real estate that you've ever seen in your professional lifetime."
The reason is that Florida's first generation of condominiums — buildings 50 and 60 years old — are ripe for termination. In real estate parlance, that means they'll be torn down.
"These buildings, they have two things. They're 60 years old, they're on the water and they're in "A" locations. And they're crappy old buildings," says Eichner, CEO of the Continuum Co. He currently has some condo projects under construction in South Florida and says more are coming.
Older buildings, especially those near the beach, are being replaced with luxury condominiums. Owners of units in buildings put up decades ago are discovering that regulations passed after the devastating collapse of a condominium tower in Surfside, Fla., have made their properties targets for developers.
A total of 98 people died in the Champlain Tower South collapse in 2021. Florida lawmakers have since adopted measures aimed at ensuring the safety of aging buildings. The new law says condo associations must regularly assess the structural integrity of their building and fully fund reserves necessary for maintenance and repairs.
To comply with the law, many associations are significantly raising monthly fees. In addition, newly required inspections can lead to shockingly high special assessments, which not every condo owner can afford to pay.
"You may have those that are on a fixed income that are retired and they may not be able to," says Miami attorney Robert Pelier. "Some developers, either ethically or unscrupulously, may seek to take advantage of that financial landscape."
Developers sometimes adopt tactics aimed at pressuring reluctant condo owners into selling. And even when condo associations agree to a buyout, deals can go bad. Pelier owns a condo in a building on a particularly desirable part of Miami Beach, an area sometimes called "Millionaire's Row." In Pelier's building, unit owners agreed to sell to a developer two years ago. But since then, he says, the deal has stalled, leaving residents in limbo. Contracts, he says, have been "extended and re-extended and re-re-re-extended. And you know, you can't have people trapped in a contract forever."
Residents are suing to get the developer to follow through on the deal.
Rising interest rates and steep construction costs have slowed down some of the projects after contracts have been signed. In other cases, owners are struggling with developers who buy up other units in the building and, in some cases, take control of the condo association board.
Mathew Zimmerman is a lawyer who represents a group of residents in that situation in West Palm Beach. They filed a lawsuit to block their condo's termination. Under the deal, Zimmerman says they were being offered just $40,000 in cash for their units — far less than what they're worth.
"During the hottest Florida real estate market where everyone is moving into town from New York and other places, go find a new place to live for $40,000," Zimmerman says. "That would be impossible. Certainly not in that area."
Florida law requires that condo owners receive fair market value for their properties. A judge ruled that it hadn't happened in this case, but the developer is appealing.
For developers, the major challenge in targeting old buildings is persuading a hundred or more owners of condo units to sell. Eichner says it's not easy. "Because you've got to be willing to sit in coffee shops and hold people's hand. You've got to be willing to go find the grandchild to help the grandparent relocate. Most of the people in the development business, that's not what they do."
Eichner believes the current regulatory and real estate market should make it a win-win for the developer and the unit owner. Condo units in these aging beachfront buildings typically sell for hundreds of thousands of dollars. "However," Eichner says, "if you were to take the totality of the building, all of the units, and tear the building down, the land is worth a million dollars a unit."
That means unit owners can get a lot more for their condos if everyone agrees to sell.
But even if the price is right, some retirees and other longtime tenants might not be interested in a buyout. Under Florida law, if just 5% of unit owners object, they can block the sale. Eichner believes that provision of the law, which protects condo owners, is killing too many deals. He's hoping in upcoming legislative sessions, Florida lawmakers will amend the regulations and make it easier for developers to tear down and replace aging condominiums.
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