Icon Brickell has been a frequent target of bulk buyers
Almost three months after Gov. Charlie Crist signed the Distressed
Condominium Relief Act, the South Florida real estate market could see a
huge rush of large-scale deals, among whose provisions removed
frequently problematic “successive developer liability” for
would-be bulk buyers.
The law was signed June 1, and took effect July 1.
It notably gave condominium associations the right to demand delinquent
renters pay rent directly to the association, a provision that has been
successful so far.
More crucially, it also removed successive
developer liability, which had meant that anyone who sold or leased more
than seven units in a condo in one year was legally considered a
developer, and assumed the types of liabilities — like construction
warranties — typically associated with developers.
Since the law went into place, activity has been “off the charts,” said Peter Zalewski, founder of Condo Vultures.
By removing the potentially unlimited liability for bulk buyers before the law’s passage, major Wall Street funds representing institutional investors are looking around, most of them with open wallets and assets “in the billions.”
“We’re moving away from a situation where it’s 10 or 20 units in a bulk buy, to one where it’s 100 or 200 or even 300 units,” Zalewski said. “You have several Wall Street funds competing on the same projects. It’s all because of the change in the law July 1.”
Before the passage of the law, successive developer liability was proving to be a major concern for interested purchasers, grave enough to prevent some deals from being transacted, said Martin Schwartz, a real estate attorney with Bilzin Sumberg in Miami.
“There were deals that didn’t go through [because of it],” Schwartz said. “I know that before the passage of the law, we’ve had discussions with a number of our clients, and they were very, very wary of undertaking a situation where they would get into potentially unlimited liability.”
The change in the law was dramatic for the market, Zalewski said, but had the same kind of unseen impact like a change in interest rates.
Now, however, almost two months after the law went into effect, the law is starting to have a stimulating effect on the market, he said.
“There has been activity lately,” he said. “We’ve been involved in one or two situations where the bulk purchaser, or potential bulk purchasers, were encouraged by the fact that the shield was available to them. But it’s still working its way through the system.”
Mark Grant, a partner at Ruden McClosky who was among the bill’s drafters, said that while he had not personally been contacted by any bulk buyers since the passage, one of his partners is about to do a filing to the state on a bulk purchase.
One of the firm’s clients is doing a filing with the state as a “bulk assignee,” as bulk buyers are described under the law.
“They’re going to be doing a filing in that capacity and using the protections of the law with the sale of a property.”
Schwartz said it was still early to tell just how much impact the law would have in a still-uncertain market.
“I think it’ll help, but it’s just one of the factors that has inhibited the purchase of bulk units. From what I’ve been able to see from our clients, I think the perception is that the market has basically bottomed out; but there is some uncertainty in the market about future prospects.”
Zalewski, who said he has been working with bulk buyers in the region since April 2007, said the change has been drastic.
“I would challenge you to find one of the largest groups on Wall Street who’s not looking in South Florida right now,” Zalewski said. “I would anticipate you see some huge numbers put on the board by the end of the year.”