South Florida in 2023 saw the highest
number of condominiums selling out to developers since the
pandemic. More buyouts are in the pipeline, raising
questions about the future of South Florida’s skyline.
Miami-Dade and Broward saw 18 such buyouts last year, the
highest number since 2019 when both counties had a total of
23, according to data from the Florida Department of
Business and Professional Regulation, which tracks condo
terminations across the state. Condo buyouts or terminations
occur when at least 80% of owners band together and vote to
sell to a developer who plans to redevelop the property.
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South Florida condo terminations jumped in 2023, and more are expected. Above: Condo Biscayne 21 sits in the distance (center). Two Roads Development gained control of the Edgewater building after buying most residences. |
In 2021, local real estate agent and developer Vivian Dimond competed with an out-of-state developer to acquire most residences in this waterfront condominium and take over the building. She fell short of her goal, but planned to stay on to eventually gain control of the site.
Today, developers are more cautious of
entering into situations like Bay Park Towers and any other
condo terminations. Two factors are influencing developers’
behavior, said Joseph Hernandez, partner at the law firm
Bilzin Sumberg. Hernandez often represents developers during
these buyouts, and has about five in the works now.
First, he said, interest rates are higher today than they
were a few years ago, making financing “twice as expensive.”
A 30-year fixed rate for a mortgage from national mortgage
lender Freddie Mac hovers at 6.94%, compared to 4.41% in
March 2019. Second, commercial banks tightened their purse
strings after federal regulators hounded industry players
due to the closure of Silicon Valley Bank last year.
Regulators asked all commercial banks to check if they were
overexposed to any type of asset, and for many of them in
Florida that meant too much real estate lending and a need
to step back on many future deals.
With finances looming large, it would make sense for
developers to be extra cautious about new projects,
especially those that involve often tense buyouts. Still,
some communities, it seems, are ripe for condo buyouts. The
same four communities have remained popular for condo
buyouts since 2019, including the city of Miami (21,
including Coconut Grove), Miami Beach (13), Bay Harbor
Islands (8), and Fort Lauderdale (8).
What might it mean for a neighborhood to have at least one
aging building replaced with a new high-rise, much less 21
of them, like in the city of Miami? This trend spells one
thing — change. Although it takes years to get projects off
the ground and built, the skyline, density, and possibly
even pool of residents able to live in these new buildings
once they’re constructed will be different than it is today.
Aging buildings are often smaller, contain fewer residences,
and, since it’s cheaper to purchase in older condominiums
than in new construction, more socioeconomically diverse.
Cities with double-digit condo buyouts, like Miami and Miami
Beach, will inevitably look and feel different.
“Imagine all of those buildings being redevelopment over the
next 10 years,” Hernandez said. “I see more condos. In some
cases I see more hotels and resorts.”
The Champlain effect
Champlain Towers South changed the future of high-rise
communities. The summer 2021 collapse of the 12-story,
39-year-old beachfront condominium in Surfside killed 98
people, shook all of Miami-Dade, and inspired statewide
legislative change.
Today, the Florida legislature requires all condominiums to
be inspected, up to code, and flush with reserves in case
repairs are needed. Before Champlain, condo associations
were not required to maintain a minimum amount of reserves.
This change comes in light of early findings from the
collapse, indicating Champlain Towers South desperately
needed renovations but its owners had chosen to postpone
them due to the cost and limited reserves. A formal
investigation remains ongoing, expected to conclude this
year.
Immediately after the collapse, real estate analysts and
agents predicted a rush of condo terminations among South
Florida’s aging buildings. Surprisingly, condo terminations
actually fell: Miami-Dade and Broward had seven in 2022,
down from 12 in 2021. So, why is it just now we’re seeing
condo terminations rise again? Zalewski said the ripple
effects from legislation after the Champlain collapse took
longer than expected since these deals take about a year to
fully iron out and hold outs can derail plans.
“It’s just about getting over the finish line,” Zalewski
said.
Condo terminations are on the rise beyond South Florida.
Based in Virginia and often advising on cases both in the
D.C. metro area as well as in South Florida, law firm Reed
Smith’s Senior Counsel Robert Diamond said condo
terminations are growing in Illinois, Virginia, New York,
Maryland and Arizona. Florida, he said, takes the lead.
“This is happening where the buildings are 40 or 50 years
old,” Diamond said. “If you’ve got a very old building,
you’re likely to see terminations. I would say South Florida
is at the front of that, because of the older buildings.”
Perfect storm
Champlain may be the biggest catalyst in the rising number
of buyouts, but other factors are at play. Owners have
plenty of reasons to jump ship, including rising insurance
premiums with Florida seeing the highest rate of growth than
any other state, a Fannie Mae blacklist of condos it refuses
to back for loans, and a rising amount of condo inventory
coming online, meaning aspiring sellers will have more
competition.
All of this tells real estate lawyers Hernandez, Diamond and
condo analyst Zalewski the same thing — more condo
communities will take the bite and sell out.
“By the first quarter of next year a lot of these buildings
are going to be under tremendous financial pressure,”
Hernandez said. “For a lot of these buildings, the numbers
are not going to make sense.”