'We Call It Herding Cats': Sellers Are Slowing The Expected Wave Of Condo Buyouts

Unit owners at the Four Winds condos in Surfside were busy evaluating bids from contractors for repairs to secure the building’s 50-year occupancy recertification in early 2023 when two developers appeared with unsolicited offers to buy the property.

Naftali Group sent a letter last January saying it would pay $115M for the 12-story, 144-unit building, a price it said was a 56% premium on each unit’s value and 73% more than the land was worth. The Continuum Co., another New York-based developer with a presence in Miami, arrived soon after to offer even more. 

The condo board distributed a survey to gauge interest, hired a lawyer, appointed a separate committee to consider the deal and held meetings to weigh the offers. After much deliberation, unit owners decided to reject the bids, abolished the committee and plowed ahead on repairs on the building at 9225 Collins Ave. 

The saga at the Four Winds, which was built in 1967, offers a window into the labyrinthine process developers must go through to execute a condo buyout in South Florida.

Market realities, driven by new maintenance regulations for older residential buildings, have set the stage for a wave of sales. But while motivated sellers exist, developers eyeing prime oceanfront sites are also contending with unit owners fighting to hold on, raising questions about how many buyouts are viable. 

“It really comes down to a numbers scenario in which the condo owners have an expectation of paying X, and the developers are willing to pay Y, and they're just not near each other,” Alexandra Eichner, president of Continuum Co. in Florida, said of the failed Four Winds deal and others like it.   

A surge of buyout offers is happening against the backdrop of increased condo regulations passed by the Florida Legislature in the wake of the Champlain Towers South collapse in 2021 that killed 98 people. The law now requires reserve studies every 10 years and compels condo associations to fund reserves that they had frequently waived in the past. 

The new rules come as the price of insurance skyrockets across the state and construction costs remain elevated, leaving condo owners with the choice to pay up or sell out.

Miami-Dade and Broward counties saw 18 condo buyouts last year, the most since 2019, according to data from the Florida Department of Business and Professional Regulation reported by the Miami Herald. 

More sales are expected to close this year ahead of the Jan. 1 effective date for the new regulation.

“The people who live in some of these older buildings are faced with a huge economic issue,” said Alan Dimond, an attorney at Greenberg Traurig focused on real estate litigation. “Now the bill has come due and people are faced with having to write checks or the option to receive checks. A lot of owners have determined that the option to receive checks is a better option for them.” 

Joseph Hernandez, an attorney at Bilzin Sumberg, said he is working on around five buyouts. He estimated there are as many as 2,400 condo buildings in South Florida that are more than 30 years old, with an average age of 50. 

“I would say the great majority of those — probably in the 80% to 85% range, my estimate — are probably in the situation that they are past the point where they're going to be able to feasibly finance the operation and maintenance of their building into the future,” Hernandez said.

“In other words, the cost of maintaining these older buildings and the cost of insuring them is growing each year, while the value of the units in the projects are decreasing.”

But the wave of buyouts on the horizon is headed to a rocky shore. Executing the deals has been likened to solving a Rubik’s Cube, with time-consuming negotiations with individual unit owners sometimes dragging on for years, only to fall apart. 

“We call it herding cats,” Dimond said. “It takes a real talent to herd cats. You're dealing with individuals with varying backgrounds and varying economic abilities, and many of them have been very long-term owners of these units.” 

Winning approval from enough owners to terminate a condo association — Florida law requires at least 80% of owners to buy in, but it also allows as little as 5% of owners to block a deal — is just one of several hurdles buyers must clear to execute a deal. 

Developers frequently seek site plan approval for a new project before closing, leading to architects being hired to draw up plans that must then be approved by local governments. Today’s financing environment, with interest rates at their highest levels in nearly two decades, makes the lengthy process of closing a condo buyout less attractive to lenders and developers. 

“The audience of willing buyers for these is much less,” Hernandez said. “They have to be very sophisticated, they have to have a lot of capital, they have to be very patient, and they have to know they're in it for the long haul if they're going to get a good piece of property.” 

Continuum closed a waterfront condo buyout in December in North Miami, where it plans a 267-unit luxury project where the Mariners Bay Condo stands today. Eichner said she is working on similar deals while fielding calls from condo associations looking for a buyer. 

She said her firm was able to find success in the space because it takes a hands-on approach to win over individual owners and build rapport inside the building. Instead of sending a team of lawyers to make the pitch, she works with her father, Continuum CEO Ian Bruce Eichner, and the firm’s chief legal counsel to personally call unit owners and help them along in the process.

She said she has gone as far as to help owners plan the logistics of their move to win them over. 

“There’s a likability, a personality component, because ultimately you are dealing with real people with real feelings, and developers can often rub people the wrong way,” Eichner said, adding that unit owners in favor of a sale are often the best people to bring other residents to their side.  

“You need people on the inside who understand what's going on, who can help disseminate information,” she said. “Developers are, at first glance, not generally trusted.”

Continuum has also found success by avoiding what amounts to a hostile takeover of a property where a developer quietly buys up a critical mass of units that will enable it to terminate the association and move ahead on a redevelopment.

That route presents a host of other challenges that can derail a deal. The tactic has created tensions at Miami Beach’s Amethyst condo building, where Miami-based developers Terra Group and Mast Capital have engaged in a duel for ownership. 

Mast has been approaching owners to buy up units for three years at the 11-story, 120-unit building at 5313 Collins Ave., The Real Deal reported. The developer had closed on eight units by June but terminated a purchase agreement in late 2022 with 28 owners of units that the firm needs to reach the 80% threshold to terminate the condo association. 

Terra waded into the buyout in July, sending unit owners a letter saying the firm would pay $750K for each of the 28 units Mast terminated and $550K for other units in the building. Mast had paid $235K to $480K for units up until Terra’s offer, TRD reported.

Mast told TRD in September that it was “working in good faith” to close the deal, but Terra also told the publication that it was still interested in acquiring the property by the end of this year. 

“The interesting thing about the new condo law is that it eliminates the need to some degree for a hostile takeover,” Eichner said. “There's so many buildings that are in real financial disarray. You have real people who really can't afford what is being forced on them, and instead of putting yourself in a hostile takeover situation, you get to come in and actually help.” 

Even when working with a friendly board, a handful of unit owners can stop a deal in its tracks. 

The condo association at Castle Beach Club in Miami Beach hired Colliers to market its 4-acre oceanfront property following the Surfside collapse and attracted interest from several bidders. Related Group and 13th Floor Investments were on track to acquire the property for $500M but were blocked by a group of unit owners in 2022. 

Terra stepped in to try to execute a deal, but its contract with a majority of unit owners expired at the end of January. The developer is still working to acquire the property, TRD reported. 

Terra CEO David Martin sent a letter to condo owners that said the firm was “faced with three owners that own multiple units that did not sign the extension agreement, along with some unreasonable owners that have made the project economically unfeasible,” according to TRD. 

Martin declined Bisnow’s request for comment.  

The impact of the changes to the state’s condo laws hasn't been fully felt by the condo owner community, Hernandez said, even as local municipalities search for ways to alleviate high repair costs. As special assessments roll in and condo association fees rise, Hernandez expects more owners will opt to take the check rather than write one. 

“I would suspect sometime over the next five, 10, 15 years, there’s going to be a massive amount of redevelopment of all those lots,” he said. “There's just too much value in the land locked up to not make productive use out of it. There's too much opportunity there, too much money to be made.”