During the summer of 2010, Miami’s real estate market was, for the most part, stagnant. Investors, even those armed with cash, remained reluctant to part with it. In June 2010, then-Gov. Charlie Crist signed a series of amendments to Florida’s condominium law, in a bid to promote investment, dubbed the Distressed Condominium Relief Act.
It was one aspect of those changes, which took effect in July 2010, the suspension of “successive developer liability,” which proved crucial to Miami’s condo boom in the last two years.
“Without the successive developer liability [waiver] extension, it’s likely that the recovery would have taken much longer,” said Peter Zalewski, founder of brokerage and consultancy Condo Vultures.
Previously under Florida’s condo law, any buyer who had sold or leased more than seven units in a condo in one year was legally considered a developer, meaning they became responsible for liabilities, like construction warranties.
The fear of taking on that risk, and the difficulty in quantifying it, kept many investors on the sidelines, according to Bilzin Sumberg attorney Martin Schwartz.
“What we were telling clients was that there was really no clear answer under Florida law, and [clients were] asking would they be safe with the prospect of liability in an indeterminate amount,” Schwartz said. “If we told them they could be liable for $1 million, they could just adjust their purchase price. But no one knew what the number was, so it really discouraged people from coming in and buying unsold units.”
Earlier this month, Gov. Rick Scott renewed the law for another three years, preventing what would have kicked in a sunset provision in the law.
Scott’s office did not respond to a request for comment.
While it’s unlikely to have the same kind of impact as it did in 2010, the extension could have a ripple effect on the distressed market, particularly in South Florida’s western suburbs, which have not seen the same kind of growth as its coastal urban areas, which have already seen a drastic reduction in inventory.
While the distressed market has improved, particularly in Miami, it still represents a market share of 48.2 percent of all sales, according to a recent report by Douglas Elliman Florida.
“What the designation does, is clear the way for bulk buyers to go after distressed product located in suburbia,” Zalewski said. “It’s just a natural progression and evolution, of cleaning up the mess from the boom and the bust. This extension should work towards putting South Florida on the right track towards absorbing [the entire] excess distressed inventory in some of these bulk projects that went sideways.”
Some such projects include the NoBe Bay condo in Miami Beach to the Tao in Sunrise.
What’s not clear is whether the law should become a permanent provision, Schwartz noted.
“I think there was some apprehension at the time that the law was adopted, that we were somehow giving people a free pass, and it’s not really right, because we had exigent circumstances,” he said. “This will give us another three years to see how this plays out, and whether or not there are any disadvantages along with the advantages.”