Condo Buyouts Stall As Developers Balk At Sellers Looking To ‘Hit The Jackpot’

South Florida’s thousands of aging condos are at a crossroads. 

For unit owners it’s a crisis that will likely force hundreds of people out of their homes. For developers, it’s an opportunity to snap up some of the region’s most desirable development sites to build new luxury towers. 

Deadlines loom for condo owners to pay for expensive repairs mandated by a new law, creating a high-stakes waiting game between the owners of old condo units and the developers who may want to purchase their property for redevelopment.

Many condo owners have been left with three options: try to sell their unit, band together to try to sell their building or pay a steep repair bill to keep their property habitable.

“It's going to put a lot of pressure on the owners to come up with the money that they may not have,” said Jaime Sturgis, the CEO of Native Realty who is currently working on several buyouts. “That can force people to move or sell when that wasn't their intention or plan.”

The dynamic is driven by revisions to South Florida laws passed after the collapse of the Surfside condo tower in 2021 that killed 98 people. 

By the end of this year, owners at older condo buildings are required to complete a structural integrity study to ensure their buildings are safe to occupy.  When structural deficiencies are discovered, associations are now required to set aside money and make repairs. 

Previously, owners could simply opt not to fix their property.  

“There's going to be a reckoning for all of the deferred maintenance that has been made at these buildings,” Sturgis said. 

Elected officials across South Florida have been calling on the Florida Legislature to create some kind of program that could allow residents to stay in their homes. But their hopes were dashed this month when Florida Senate President Kathleen Passidomo sent a letter to her colleagues rejecting a request to convene a special session to amend the law. 

In the six-page letter, Passidomo said she was “increasingly concerned by what I see as a growing narrative, ripe with misconceptions and inaccuracies” regarding the post-Surfside law. 

“The problem is, as with all lifestyles, condominium living comes at a price,” she wrote, adding later that “too many of our condo buildings are in need of critical life and safety upgrades” because condo associations opted to waive fees for decades. 

At older buildings, that deferred maintenance can translate to a six-figure special assessment for every unit owner for repairs that ensure the property is structurally sound but do little to the overall property value. 

“Significant special assessments do not add that much value because it's not like you're decorating your unit,” said Edgardo Defortuna, CEO of the prolific South Florida real estate firm Fortune International Group. “It’s more just fixing concrete in the parking lot, so it's really a very difficult situation.” 

As the deadline inches closer, older condos are flooding the sales market. The number of condos listed for sale has tripled in the past two years, according to WLRN, as owners look for the exits rather than being on the hook for repairs. 

Condo sale prices and transaction volume have fallen steeply in recent months as the cost of ownership has risen, and savvy buyers are paying close attention to any potential special assessment that could be coming.   

“There are listing agents that will not even take on listings for people that are trying to sell their condos because it's an exercise in futility,” Sturgis said. 

In South Florida, the ebb and flow of development cycles means that the condos along prime coastal properties are some of the same properties that now need extensive repairs. 

Sensing the opportunity, developers have been approaching condo owners with offers to buy them out of their buildings. But the complicated effort to win over a critical mass of owners to close a sale, which has been likened to herding cats, has significantly slowed the pace of deals. 

The gap between where condo owners value their units and what developers are willing to pay to knock their building down remains wide, often because a broker has promised the seller an unachievable price point before bringing their property to market.  

“They're trying to not only save themselves but hit the jackpot,” Defortuna said. “Sometimes that doesn’t work.” 

Some owners know they’re facing a steep repair bill that will not add much value to their property, but they’re still holding out for a better offer. Peter Zalewski, the founder of Condo Vultures, a firm he created in 2006 to track the South Florida condo market and advise buyers and sellers, cautioned that those bigger payouts are unlikely to materialize. 

“Developers will offer a lowball price versus what a seller thinks their gorgeous dream home is worth, but they’re simply bleeding out the illness,” Zalewski said. “Developers will sit back until the seller feels very lucky to unload at a price they never would have accepted before.”

Unfortunately for unit owners, it’s not enough for just them to be motivated to sell to a developer. It is frequently not until the buyer has amassed enough units at the property to terminate its condo association that anyone gets paid. 

The result is that a small minority of unit owners can block a sale. At the Biscayne 21 condo tower in Edgewater, it took just 10 of 192 unit owners to blow up a buyout. 

The ongoing legal dispute is already slowing down other buyouts as developers hire lawyers to pore over condo association bylaws to ensure they will have a successful sale. It also has the potential to set a legal precedent that will make buyouts harder to execute at a time when owners may be most motivated to sell.

“It's only going to take one unit owner to stand in the way and make a claim,” said Joseph Hernandez, a partner at Bilzin Sumberg who works with developers on buyouts. “If this precedent holds, it would be extremely difficult to get a termination done in cases with similar facts.”

The Biscayne 21 case revolves around a dispute over the number of unit owners needed to change condo association bylaws or terminate the association entirely. 

Current Florida law requires 80% of unit owners to agree to terminate an association, but it also allows as few as 5% of owners to block a sale. Some condo associations require a higher percentage of owners to buy in, in some cases requiring unanimous support. How the rules are enforced can also change depending on when the association bylaws were written. 

A Florida Court of Appeals ruled in March that the Biscayne 21 buyer, Two Roads Development, violated the law after it acquired enough units at the property to change the condo association bylaws and reduce the required threshold to terminate the association. 

Two Roads appealed the decision, asking for a panel of all the Third District judges to reconsider the case. Five months later, the court hasn’t responded to the request, leaving developers and lawyers in a state of suspension as they try to predict what the court may do. 

Hernandez said he and his colleagues suspect the silence is because the court is examining the issue as it prepares to hear the case.

“The court wouldn't take this long unless they were taking a serious interest in this issue, and they're doing their own research, and they want to be ready to rule if they take it on,” he said. 

The legal limbo has caused some of Hernandez’s developer clients to reexamine planned acquisitions. Defortuna, who’s actively working on buyouts, said it led him to move more cautiously and give extra scrutiny to the condo bylaws of the properties he is pursuing. 

The Third District Court is not operating under any deadline, and it could ultimately side with the tenants again if it does opt to hear the case. Two Roads would likely appeal that decision to the Florida Supreme Court, further delaying any clarity on the issue.  

While the Florida Legislature has scuttled any hopes that changes could be coming to the post-Surfside condo laws to provide near-term relief to owners, Zalewski at Condo Vultures said state officials would be much more likely to act on behalf of developers if the Biscayne 21 tenants are ultimately successful in blocking the sale of their building. 

In a state with no income tax, the real estate sector plays a crucial role in filling government coffers through property taxes, transfer fees, taxes collected at closing and more. 

“This will probably be a one-hit wonder, simply because you got to keep the real estate circus going,” he said. “Otherwise, schools are affected, city budgets are affected, county budgets are affected and the state legislature's revenues are hit.”