Older condo units are flooding the market but demand has dried up.
The Florida condo market is recalibrating, as changes to the Condo Act tank the market for 30-plus year old condos, creating uncertainty for the thousands of families who own them. But developers looking to buy them are facing their own uncertainty. The combination of the recalibration and legal uncertainties have stalled bulk sales which would provide a logical solution for many of these older projects and their owners.
The last few years have been dominated by headlines about the conundrum legislators and condo owners find themselves in, as the state tries to balance building safety with the structural realities and the cost of maintaining older buildings.
To address the lack of mandated maintenance of the state’s over 900,000 aging condominium units, the legislature made changes to the Condo Act, parts of which will go into effect in 2025. These changes mean many condo owners across the state will soon receive high special assessment notices and condo owners association fee increases — the total of which may equal tens of thousands of dollars in some cases.
Already some owners are being priced out of their homes.
Older condo units are flooding the market but demand has dried up. With the deadline for the structural reserve studies at the end of 2024, buying these units doesn’t make sense. The individuals who can afford to pay the increased fees can just as well afford a newer unit in a building with better amenities. Individual owners simply aren’t buying.
With individual owners out, developers are increasingly the only option for desperate sellers — but completing the bulk-sale to a developer has become complicated. Changes to the Condo Act post-Great Recession have made dissolving condo associations harder, and developers increasingly face legal hurdles from the courts as they attempt to buy out owners.
Florida is stuck in a sort of redevelopment stalemate — one that neither owners nor developers can afford.
Despite the warning lights that have been flashing for months, many condo owners simply haven’t been acting with the urgency you’d expect in this sort of situation. Buoyed by the knowledge that the land many condo units sit on is highly valuable to developers, many seller groups are holding out for unrealistically high prices.
But while sellers feel like it’s a sellers’ market — developers are still competing amongst themselves trying to get the best sites — it’s going to become less and less competitive. As many condo owners will be unable to afford unusually high special assessments and COA fees, many condo projects may go into distress.
It will be a game of patience for developers. Many will be willing to wait for certain projects to go into receivership and purchase projects in bulk. The threat of receivership may incentivize some unit owners to quickly organize and sell to a developer.
If an association does not have a functioning board of directors, in many cases either a unit owners or one of the mortgage lenders will go to court to argue that a receiver be put in place. Once that happens, the entire situation is turned over to the courts; receivers have to answer to the courts, and all decisions need to go through court approval.
If developers wait it out, they may have a better chance at buying the real estate unencumbered by the legal structure that is the condominium; they can get land that happens to have a building on it, and in doing so, avoid some of the legal hurdles inherent in terminating a condominium that are wreaking havoc in other cases.
But time is money and uncertainty looms. The Fed’s announcement that they wouldn’t be cutting rates as aggressively in the new year created more uncertainty about market conditions in 2025. Other macroeconomic factors are creating uncertainty about the outlook for construction over the next several years.
Buyers and sellers agree: the condo market needs to get moving. With little promise of a solution coming from the legislature, the fate of Florida condominiums may be left up to the courts and developers.
*This was republished with permission from the Palm Beach Post. Click to access the publication.
