Developers are targeting hundreds of aging condo apartment buildings in Miami Beach for acquisition so they can tear them down and build new luxury residential towers, zeroing in on towers approaching a 40-year deadline to recertify structural integrity.
At least eight waterfront condo buildings in Miami Beach currently are involved in discussions for sale to developers, according to brokers and developers surveyed this week by the Wall Street Journal. WSJ said developers including Related Group and Starwood Capital Group are pursuing aging waterfront properties in the Miami area.
Florida law requires that 80 percent of condo unit owners agree to a sale before a condo building can change hands, often forcing developers to go through a tedious process known as condo termination, effectively negotiating the purchase of each unit with its owner.
The requirement in South Florida that buildings older than 40 years must be recertified for structural integrity is creating a reckoning of sorts for the existing inventory of beachfront apartment buildings in the area, a majority of which date back to the 1970s or earlier.
The viability of older apartment towers in the Miami area has come into question in the wake of the partial collapse of a 12-story beachfront condo building in nearby Surfside last summer that killed 98 people.
The collapse in Surfside of one of two beachfront Champlain Towers, which were erected in 1981 and found to be in need of significant structural repairs, drew attention to a 2020 Florida International Survey of the coast which reported that much of the ground under Miami Beach is slowly sinking.
According to WSJ, hundreds of apartment buildings, representing more than two-thirds of the inventory in the Miami area, are either approaching or more than 40 years old.
After the Surfside collapse, numerous Florida lawmakers said they would enact tougher inspection requirements for beachfront apartment buildings as well as retrofit funding requirements for condo owners, but no action was taken before the state legislature session ended last month.
Repair costs to retrofit aging condo towers, which must be assessed and then paid by the unit owners, can exceed by far the building’s overall value as well as the ability—or willingness—of condo owners to pay these costs. Failure to make needed repairs can set off a domino effect of assessment defaults, budget shortfalls or building code violations for unfinished repairs.
The best-case scenario for developers who want to buy a condo building is for all of the condo unit owners to agree to sell as a group. Prior to 2007, 100% agreement to sell was required by Florida law. In 2007, Florida enacted a condominium termination statute that reduced the threshold of agreement by unit owners needed to sell the building to 80 percent.
With most of the prime waterfront locations in Miami completely built out and the demand for luxury condos skyrocketing, many developers are offering condo unit owners sale prices much higher than the market rate in an effort to reach the condo termination threshold, WSJ said.
Owners of condo units who are on fixed incomes are confronted with choosing between a sale offer—which may not completely cover their debt on the property—and looming repair assessments they can’t afford, according to the WSJ report.
Source: GlobeSt.