South Florida’s aging condo stock, high costs and hungry developers create a “perfect storm”
Mounting issues are “going to put people on the street,” says Bilzin Sumberg’s Carter McDowell
Developer Victor Ballestas recounted his experience with condo/co-op terminations of aging properties. His firm, Integra Investments, has been successful on just one since its inception in the late 2000s.
“We’ve made offers on 20, taken 10 through the contract stage, and we haven’t been able to close on any,” he said Thursday at the fourth annual Bilzin Sumberg Development Conference in Miami. Ballestas spoke on a panel about the “aging condo conundrum” alongside Mast Capital developer Camilo Miguel Jr., broker and developer Arden Karson, attorney Anthony De Yurre of Bilzin and moderator and attorney Carter McDowell, also with Bilzin.
Condo terminations aren’t new, but the deadly condo collapse in Surfside in June 2021 put attention on older condo communities. And during the pandemic, when the real estate market was hot, it became more difficult for developers and condo owners to reach agreements on price.
“Everyone thought their $500,000 condo was worth $2 million,” Ballestas said. “It’s been really hard to get to a bid-ask price.”
Miguel, CEO of Coconut Grove-based Mast Capital, called the deals “incredibly challenging,” given that they can be held up if 5 percent of owners block the deals. Florida law requires 95 percent of owners plus 1 to terminate a condo or co-op association.
In many cases, especially since the collapse of Champlain Towers South, associations and unit owners are dealing with costly repairs, as well as rising insurance premiums and other inflationary cost increases. Many owners in the most vulnerable buildings are on fixed incomes and can’t afford such bills, creating a “perfect storm” McDowell said.
“There’s a multitude of things going to put pressure on these unit owners,” Miguel said. “The question always asked by unit owners is, ‘Where am I going to go?’”
McDowell pointed to expensive special assessments that owners face, as well as deadlines to comply with new state law requiring associations to complete financial reserve studies, fund their reserves, and make necessary repairs to complete the required building recertification.
“This ranges across the whole economic gamut,” he said, including the least expensive condos whose owners are unable to fund expensive repairs. “Some of these things are literally going to put people on the street. … I think there is going to be a real affordability crisis.”
Developers use a variety of approaches for buyouts. Ballestas jokingly compared Mast Capital’s strategy to something more akin to a “hostile takeover.”
“Once you start buying units and you start taking that risk, you really have a seat at the table,” Ballestas said.
Miguel countered. His acquisition of the property at 5333 Collins Avenue, an oceanfront building that is being redeveloped into a boutique luxury condo project called the Perigon, took about three years, he said.
“Contrary to what Victor [Ballestas] said, you have to play nice.” Otherwise, “you’re going to create a lot of enemies.”
In some cases, buyouts will pit developers targeting the same building against each other. McDowell, without naming the specific property, said his client ended up in a joint venture with another developer on a buyout in Bal Harbour. He was likely referring to Related Group and Two Roads Development’s roughly $130 million buyout of the former Carlton Terrace property. Related, Two Roads and Rockpoint Group are developing the luxury condominium Rivage Bal Harbour on the site.
In other situations, residential brokers will approach potential sellers one by one, Karson said. Or, commercial brokers will be hired by an association to solicit bids from developers.
No one size fits all, the panelists said. And nearly all cases will have owners “who really don’t want to sell,” McDowell said.
“It’s a great market to sell into. It’s a lousy market to buy back into,” he added. “How do we address those folks?”