Surfside Collapse Will Lead To Developers Buying Out Whole Condos For Redevelopment, Experts Predict
When the Champlain Towers South condominium collapsed in Surfside, Florida, in June, it brought scrutiny to other buildings with potentially outdated structures.
“I think of any building built before 1970, or in the 1970s,” said Don Peebles, founder, chairman and CEO of The Peebles Corp. “Chances are a 50/50 shot that the concrete was mixed with beach sand. So they’d coat the rebar, and the structure corrodes from within."
Peebles experienced this with the Royal Palm Hotel on Miami Beach, which had structural damage that led him to demolish the property and rebuild it as a replica from scratch. He sold the hotel for $127.5M in 2005.
Speaking at Bisnow’s Multifamily Annual Conference Wednesday, Peebles and other panelists discussed the effect that the Surfside condo collapse could have on the market. Residents and property owners will come under pressure to make costly upgrades to old condos, or sell their property, which could create an opening for redevelopment opportunities.
More than 912,000 condo units in Florida are at least 30 years old, The Wall Street Journal reported.
Miami-Dade and Broward counties have required buildings to be inspected and recertified every 40 years since 1974, when the downtown Miami office of the Drug Enforcement Administration collapsed, killing seven. Miami-Dade rules apply to buildings with 10 or more occupants larger than 2K SF. They require a thorough review of electrical and structural elements.
The Surfside incident, which killed 98 people, ignited concerns over building standards.
A task force convened in the wake of the incident issued a report in early October, recommending stricter requirements for maintenance and repairs, and empowering condo boards to charge unit owners for assessments and borrow money to pay for repairs. The task force also recommended that an engineer or architect inspect common spaces every five years.
A working group spearheaded by the American Council of Engineering Companies of Florida and the Florida Engineering Society also made recommendations, released Thursday. They recommended mandatory "Minimum Structural Inspections" that would apply to all non-single-family residential buildings over a to-be-determined size throughout Florida. Large buildings would be inspected within their first 30 years with follow-ups every 10 years. Within 3 miles of saltwater, such inspections were recommended within the first 20 years, with follow-ups every seven years.
Residents in high-end buildings will likely be able to shoulder repair costs, but “1950s buildings by the beach, where the assessment almost equals the value of your unit — it's impossible,” said Property Markets Group principal Ryan Shear. “It's just going to force condo buyouts.”
The panelists predicted more situations in which South Florida developers, who face ever-decreasing land availability between the ocean and the Everglades, would buy out all unit owners and knock down structures for new construction. They suggested that cycle of demolition and rebuilding can be a win/win solution.
The panelists said that older buildings don't meet quality standards desired by buyers of today, and many do not meet strong building codes that were put in place after Hurricane Andrew in 1992 caused widespread destruction.
“Miami's buildings are arguably the best … on the planet,” Shear said.
They are written to ensure buildings withstand Category 5 hurricanes, he said.
Challenges of building in Florida won't dissuade developers, the panelists said. Nearly every city in the state has been seeing a development boom, from Sarasota to Tampa and Jacksonville.
“The most impactful trend is that the tax benefits of Florida are not to be underestimated," said Arnaud Karsenti, managing principal of 13th Floor Investments, adding that these benefits are not just for multimillionaires.
A "good, hardworking executive in New York, making $300K or $400K a year, can save $50K a year by moving down here," Karsenti said. "[That $50K] at 4% interest rate buys them a million-and-a-half dollar condo, or a million-dollar condo … It’s like net neutral.”
Karsenti said Florida is especially attractive to professionals in that category looking to live in a nice place and work from home.
“That's a very integral market. To me, that's where all the volume is," he said.
Comparing Florida with other markets, Shear said his firm pulled out of Illinois because of the challenges of development, found Denver an expensive place to build, and “you cannot convince us to develop in California.”
“For every reason, from lenders, to users, to rentals to condos, Florida's going to make sense to everybody for a long period of time,” he said.
