Condo insurance crisis in South Florida could push owners to sell

At Jade Winds, a condominium complex of over 900 units, some owners, including retirees, have had to pick up part-time jobs to pay for their skyrocketing homeowners’ association fees.

The property, made up of nine condo buildings, four pools, some ponds and one long-shuttered community tower outside of North Miami Beach, is one of many across South Florida struggling to stay afloat due to huge increases in insurance costs. Built between the late 1960s and early 1970s, Jade Winds is now paying a $3.9 million property insurance bill, up nearly 300 percent compared to last year. (The complex’s total insurance, including general liability and directors and officers policies, comes out to about $4.5 million for 2022-2023.) 

Those higher costs add to the pressure the condo association faces over looming deadlines to make repairs and comply with new state laws requiring associations to fund their financial reserves. The legislation, which will go into effect at the end of 2024, is in response to the deadly Surfside condo collapse two summers ago that killed 98 people and resulted in a settlement of more than $1 billion to the victims and their families.

Across South Florida, surging insurance costs and a dwindling number of insurers writing policies in the state could result in condo owners selling their units at discounts — with vulture investors and developers ready to pounce, experts say. The costs are also leading buyers to back out of contracts. Developers have already capitalized on a handful of aging waterfront properties from Miami to West Palm Beach since the tragedy. 

“At the end of the day, what’s happening is there’s more scrutiny on the inspection [of the property], which is creating issues for a lot of the associations getting insurance,” said Ryan Papy, president of Keyes Insurance. 

It’s expected to take years for the insurance market to stabilize, and in that time, some unit owners could end up on the street. Others will incur substantial debt to stay in their homes, taking on second mortgages or other loans to buy themselves time. Fewer insurers in the marketplace means they have less capacity to offer, which means property owners across sectors are being forced to layer their coverage to meet the minimums required by lenders. Some are not meeting the minimums, and simply praying they don’t have to file a claim.

After legislators approved the condo and co-op safety bills in June, requiring 30-year and 25-year recertifications, financial reserve studies and the full funding of reserves, a number of associations were approached by cash investors looking to buy condos in bulk. (Before, associations, like Champlain Towers South, could vote to waive the reserve requirement.) 

In December, lawmakers passed additional legislation that makes it harder for homeowners to sue insurance companies, which supporters say is intended to lure back insurers that exited the Florida marketplace. 

But for many, it’s all too little, too late. 

“The condo market is getting to a point where all the things that are wrong with that whole industry are all of the sudden becoming more apparent,” said Oscar Seikaly, owner of the brokerage NSI Insurance. 

“The old buildings are going to take the brunt of this issue, [but] Florida is not known for great construction quality,” he said. “Even with the brand-new buildings, some insurers don’t want to get close to them.” 

Bulk buyers on the prowl

Most mortgage companies, especially if they are providing loans backed by Fannie Mae or Freddie Mac, require associations to fill out condo questionnaires. The results are used to determine if the building has sufficient financial reserves and provides the makeup of owners (investors versus end users) and more. This is also good for buyers, because it gives them information about the association. 

But if you’re a cash buyer, like Jade Winds’ treasurer, Grainne Boileau, you wouldn’t necessarily know to ask for the questionnaire. Boileau moved from New York in 2021 and bought one of the larger condos at the sprawling complex. 

Many buyers are like Boileau. In January, ​​cash sales accounted for 55 percent of all condo sales in Miami-Dade County, according to the Miami Association of Realtors. 

Now, Boileau is playing catch-up as a board member. When Jade Winds went to renew its property insurance in August, its existing carrier “non-renewed” the policy, said insurance broker Sean Gabay of Lockton Insurance. And Citizens Property Insurance, the state-backed “insurer of last resort,” wouldn’t move forward with a quote because of the condition of the roofs. The complex ended up layering its insurance with 11 carriers.

Had Jade Winds been able to secure a policy with Citizens, owners would be paying about half what they are paying now, Gabay said. And come August, the association could be in a worse position. He’s advising the board on ways to repair the property so that Citizens will provide a quote when the time comes. 

“If they don’t take the corrective measures, those premiums will go from $3.9 million to close to $7 million,” Gabay said. That could mark the last straw for a property like Jade Winds, where bulk investors are circling, some unit owners said. 

The complex, where many owners are on fixed incomes and where the association already weathered a bankruptcy in 2015, is an extreme example of a condo association experiencing a large insurance hike. 

In newer buildings, associations are seeing increases of between 15 percent and 30 percent compared to the previous year, brokers say. 

“January 1 was one of the biggest reinsurance dates, and it was a bloodbath. Reinsurance for [catastrophe-]exposed areas like Florida went up 70 to 200 percent,” Gabay said. Carriers then pass the cost along to consumers. 

“When the carriers are being charged that much, they’re not going to absorb it,” he said. “They’re going to pass it along.” 

Brian Boak, who heads property management firm AKAM’s risk management division, said the premiums are making it unaffordable for many.  

“If your maintenance fees go from $1,000 a month to $3,000 a month, you won’t be able to live there,” he said.

Short-term angst for long-term gain

The new insurance legislation is aimed at enticing insurers to write policies in Florida.

 It eliminated insurers having to pay certain attorneys’ fees. It also did away with assignment-of-benefits contracts under property insurance policies. Of the $51 billion property insurers spent on litigation in the past decade, only 8 percent went to claimants and a whopping 71 percent went to pay for attorneys’ fees, according to information from the American Consumer Institute’s Center for Citizen Research. 

Assignment of benefits allowed third parties, such as contractors and public adjusters, to file claims and collect insurance payments. In the first half of 2022, Florida represented nearly 90 percent of all such claims filed nationwide. 

Experts say that carriers are going to want to see the market balance itself out before reentering the state. 

“The goal is to bring more private insurance companies into Florida to make it more of a competitive marketplace,” said Christina Pappas, president of Keyes Company, one of the state’s largest independent real estate brokerages. Pappas called it “short-term angst for long-term gain.” 

How long that will take has yet to be seen. Mike Gorham, EVP of insurance brokerage Brown & Brown’s Fort Lauderdale office, said it could take two to three years. 

“The reinsurers are watching what the state does to see if they want to come back,” Gorham said. “There will be times in the next 24 months, people will not be able to get insurance.” 

That is coming as “more associations are shopping their insurance than ever before,” he said. “The problem is we’re all working from the same tool chest. No one has a silver bullet anymore.” 

Local governments are also enacting their own rules designed to increase transparency for property owners and buyers. Miami-Dade County is requiring homeowners associations to file financial and structural reports that are available via a public database. 

It could all lead to a rush to sell condos to bulk investors or developers, experts say. 

“You may see an influx from some owners in those buildings who are seeing the writing on the wall to get on the market sooner rather than later,” Pappas said. 

Many associations are embarking on huge repair projects that include concrete restoration, new balcony railings or upgrading to hurricane-impact windows to comply with building recertifications, which were already required at 40 years in Miami-Dade and Broward counties. Associations can fund those projects with loans, but in many cases they can only qualify for those loans if they have sufficient insurance coverage.

“Owners have to invest a lot to keep their unit,” said Papy of Keyes Insurance. “If not, the building may have to be demolished.”

Meanwhile, brokers say buyers have been backing out of contracts after finding out their would-be condo associations have to spend substantial sums to fund their reserves, insurance and other growing costs — in some cases doubling or tripling their monthly maintenance fees. 

“With the reserve requirement, it is a little bit of a double-edged sword we’ve created for these condos,” Pappas said. “You’re going to start seeing sellers have issues.”