The Winners and Losers in Today’s Condo Buyouts and Deconversions
HOAleader.com - Tip of the Week - October 6, 2023
In this week’s tip, we dust off our Latin skills and ask a fundamental question when it comes to condos getting bought out by developers or taken over by stealth investors: Cui bono? Or in today’s language, who ends up
winning, and who ends up losing?
With the cost of fixing older condos in Florida becoming exorbitant, and with renting much more profitable for developers, buyouts and deconversions of entire condo buildings are trendy. And the process can
be messy.
Sometimes, there’s a formal offer. Other times, investors quietly amass properties, and you don’t realize you’re a takeover target until investors
have gained significant momentum.
Deconversions aren’t just happening in Florida. Chicago is seeing it, too.
But they’re not happening everywhere. "A couple of my old condos got approached a few years ago, but I’m not seeing a trend today," says Brendan Bunn, CCAL, a partner at Chadwick, Washington, Moriarty, Elmore & Bunn, P.C., who has practiced community association law since 1993 in both Virginia and Washington, D.C. "I’m actually seeing the opposite—more
conversions into condo communities. I’m not seeing anyone undoing condos—at least not yet."
Whenever a ton of money is involved and big players are seeking the approval of small-time individuals like you and your owners, the most important
question is that Latin phrase, cui bono: To whom is it a benefit?
Sure, it’s a given that developers and investors pursuing buyouts benefit—or they wouldn’t
be increasingly seeking these deals.
But some owners and communities can also benefit, according to Ben Solomon, managing partner and founder of Association Law Group in Miami, who advises hundreds of associations as general counsel and
also represents developers, banks, hotels and other real estate investors through his second law firm, Solomon, Cooperman, Recondo & Weiss LLP.
Specifically, he’s referring to those who can’t afford to catch up on deferred maintenance
and whose building, therefore, is also getting hit hardest with increasing insurance costs.
"In Florida, our new reserve study law is already starting to squeeze the condo market," says Solomon, referring to a law now requiring condos to
fund reserves, with some minor exceptions; that’s a change from the past when owners could vote to waive reserve funding. "That, combined with astronomic insurance increases, is causing economic pressures that were already ripe for condo termination."