Surfside collapse a “come to Jesus moment” for South Florida’s condo market
On the horizon: shifts in pricing, more bulk condo buyouts, tighter regulations
The condo collapse in Surfside has put older buildings under the microscope: pausing deals, propelling associations to move forward with repairs, and generally creating trepidation for buyers and sellers.
The partial collapse of Champlain Towers South, a 12-story, 136-unit condo on the southern border of Surfside near Miami Beach, is expected to lead to lower pricing in older buildings, experts say. Buyers, lenders and insurers will likely demand more information on inspections, repairs and recertifications than ever before.
Ana Bozovic, founder of Analytics, a Miami-based real estate data firm and brokerage, called it a “real come to Jesus moment.”
The effects go far beyond South Florida, as residents of older communities around the country are now flagging their concerns over delayed repairs, spotting rusty rebar, cracked concrete and leaks.
“I’ve never in 15 years had anyone ask me how structurally sound a building is,” said Mark Zilbert, owner of the brokerage Zilbert. “After what recently happened, it will come up in every conversation.”
The emotional toll can’t be understated from seeing video of the collapse and photographs that have been plastered over the news in the two weeks since the collapse. Sixty people have died and 80 are unaccounted for as first responders continue to search through the rubble. The rest of the building came down in a planned demolition on July 4. Officials transitioned from a search and rescue mission to a search and recovery operation on Wednesday.
“I have friends and investors who told me they were all looking at each other [after the collapse], concerned about what could happen in their buildings,” said developer Rishi Kapoor. “The concerns are real. This is not because I’m a new condo developer. This is basic human psychology. There is going to be fear associated with older buildings.”
Industry experts are also calling the collapse a wake-up call for associations and buildings that have delayed repairs and special assessments.
Champlain Towers South had just begun its required 40-year recertification, more than two years after an engineer found that the concrete and waterproofing under the pool deck where the garage caved in was in need of multimillion-dollar repairs.
“Many associations have already initiated inspections to their properties,” in the days following the collapse, said Alicia Cervera Lamadrid, managing partner of the Miami-based brokerage Cervera Real Estate. “Don’t lose the lesson. And the lesson here is to stay on top of these things.”
Residents of waterfront properties from coast to coast have reported concerns regarding visible deficiencies in their buildings, in many cases taking to social media to post photos and videos. Building departments throughout Miami-Dade have begun audits of older properties. One complex in North Miami Beach was evacuated last week after the city declared the building structurally unsafe.
“The positive side of all this is, people will focus more on the financial health of these [condo] associations,” said Ron Shuffield, president of Berkshire Hathaway HomeServices EWM Realty. Until now, most inspections tied to a condo purchase have centered on the units, themselves, and not on the building, he said. He and others at his company will be addressing how agents and buyers can access 40-year recertifications and other relevant building information.
“We’re going to be talking about it in our meetings: ‘This is what people are asking for, and this is where to find it,” he added.
A tale of two markets
Zilbert said there are prospective buyers and renters who have paused their home search since the collapse. Deals have been put on hold.
The brokers who sell new and high-end inventory don’t expect a permanent slowdown as a result of the collapse. Instead, they think that it will make new inventory more desirable. The condo market has been in the midst of a huge recovery in recent months, with inventory and months of supply trending downward. The luxury sector has outperformed other price segments.
“It’s really important to recognize the market is not a monolith,” said Bozovic. “There is a huge divergence in behavior between old and new construction.”
Pricing is expected to fall for units in older buildings that are not up to date on their inspections or recertifications, brokers and experts say.
“Without question, the newer buildings, 10 years-plus, are going to benefit from this tragedy, under the assumption that they’re better built,” Zilbert said.
Adam Mopsick, CEO of Miami-based Amicon, said new repairs and assessments may result in unit owners lowering their asking prices, now that buyers would have to take on those costs. His construction management firm handles projects for condo associations.
Cervera Lamadrid called bulk purchases or condo terminations a “beautiful thing” for owners in older buildings, as developers will often pay over market value for their units.
Buildings sitting on land with denser zoning will have more leverage than those without it, according to Bozovic.
Broker Andres Asion said he could find 10 developers who would have bought out the Champlain tower in Surfside, especially since the building fronted the ocean on a large piece of land.
If a condo board can’t get a special assessment passed or the majority of unit owners can’t afford to pay it, they may be more open to a developer coming in and buying out the building, experts said. Terminations are challenging: Once word gets out, other bidders often pile on, dividing unit owners and resulting in no deal.
“Their first choice may have been to stay there,” Cervera Lamadrid said. “But their first choice is not necessarily the best choice.”
What lies ahead
In the days following the collapse, State Attorney Katherine Fernandez Rundle empaneled a grand jury investigation to determine the cause of the collapse and legislators have vowed to pass laws that would strengthen building codes and rules for condo associations. The National Institute of Standards and Technology is also investigating the collapse.
Miami-Dade County commissioners filed more than two dozen proposals after the collapse, according to the Miami Herald. The proposals are related to accelerating the 40-year recertification process and requiring that associations have larger maintenance budgets.
“You’re probably going to see a reaction of increased operating costs to continue to monitor the conditions of these buildings,” said Kapoor, who added that there will be increased pressure on association boards.
Some brokers and developers cautioned against “overregulation” in response to the collapse, stressing that not all buildings are the same. Edgardo Defortuna, whose Fortune Development Group has built waterfront towers from Brickell to Sunny Isles Beach, said “the reaction to something like this is usually an overreaction in terms of overregulation and panicking of officials.”
Hurricane Andrew, which wreaked devastation on parts of South Florida, destroying tens of thousands of homes in 1992, eventually resulted in a number of changes to Florida’s building code.
The enormity of the Surfside collapse will make decision-making easier in the future for condo associations that have disagreed on repairs and fees in the past, said Mike Pappas, president and CEO of the Keyes Company.
He is among those who expect the market to eventually bounce back to a pre-collapse mindset.
“I think there’s no question that the immediate short term will be a greater scrutiny by buyers to get information regarding that product,” said Pappas, comparing the tragedy to disasters like hurricanes. “In time, as the world moves on, I think we’ll move back to a pre-collapse environment.”