Buyers at YotelPad Miami, who were promised the ability to rent their units out without restrictions, are unable to do so due to a change in the city’s code, The Real Deal has learned. And they may be losing rental income as a result, while the developer tries to resolve the issue.
An affiliate of David Arditi’s Aria Development Group completed the downtown Miami condo and hotel building earlier this year. It’s the first new flexible, short-term rental-friendly residential development to be completed in the area, with a number of similar projects planned for the future as a result of booming demand.
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Aria partnered with the Kuwaiti firm AQARAT, a Yotel shareholder, to develop YotelPad Miami.
The development, with 231 condos, is sold out, with 161 developer sales recorded so far. Closings began in March. Many of the buyers are foreign investors, and a number of them purchased multiple units, records show.
OneWorld Properties, led by Peggy Olin, handled sales and marketing.
The projects offered buyers affordably priced units they can rent however many nights they want, which means they could generate more income than condos in traditional buildings with restrictions.
But owners at YotelPad, a 31-story building at 227 Northeast Second Street, can currently only rent their units out for a period of more than 30 days because the building has residential certificates of occupancy and use, as opposed to apartment hotel/condo hotel certificates of occupancy and use. In a letter sent to owners, Arditi said it is a “technical matter that unfortunately takes time, but is not controversial.”
How much time is unknown, owners told TRD. The development’s completion was delayed by issues related to the pandemic. It was originally slated to open by the end of 2020.
“We are facing the challenge of not being able to rent the units short-term as initially promised,” said Max Szapiro, who closed on his unit in May for $315,000.
In a statement provided to TRD, the developer said he is working with his counsel at Greenberg Traurig and the city of Miami to resolve the issue as quickly as possible.
While YotelPad was under construction, the city of Miami adopted a planning ordinance that created requirements under the apartment hotel/condo hotel designation for short-term rentals in residential units. That means YotelPad, which was not grandfathered in, had to seek apartment hotel/condo hotel certificates of use and occupancy. And in line with the current code, it was required to comply with accessibility requirements for that use.
Arditi said in his letter to residents that the firm is “working with our team of architects and general contractor to address this requirement as efficiently as possible.”
One unit owner who didn’t want to be named said he discovered the issue when he applied for a certificate of use and wasn’t able to secure it because the building wasn’t registered properly. He said he expects to rent his unit out for $250 per day to up to $400 per day, depending on demand.
The hotel is accepting 30-day stays beginning June 17, with rates starting at $214 per night, according to its website. Rates increase starting at later dates: for the month of July, for example, rates per night start at $409 for a studio and go up to about $1,300 for a two-bedroom, triple queen bed suite.
In his statement to TRD, Arditi pushed back on the claim that owners would be losing money by not being able to rent their units out on a nightly basis. He wrote that effective rents in downtown Miami have increased more than 50 percent over the past two years, and that buyers have flipped their units at 40 percent to 50 percent above their purchase price.
“YotelPad has been a very successful development and we will get through this temporary setback,” he wrote in his letter to residents. “The transient use is allowed by right, the required modification is a technical matter and not controversial.”
In an interview with TRD in May, he touted the lack of rental restrictions.
“I can use it 365 days a year if I so choose. I can also rent it out 365 times a year if I so choose, and everything in between,” Arditi said at the time. “The concept of the maximum flexibility is what’s appealing.”