A new Florida law threatens to sharply increase fees in older condominium buildings, and some industry professionals fear the reverberations could hurt sales, prices and existing owners.
The state legislature requires aging condo buildings at least three stories tall to have engineering safety inspections completed as well as studies that estimate what funding reserves are needed for maintenance and repairs by Dec. 31. Boards must start collecting the necessary reserves and to get the inspections every 10 years.
Lawmakers acted in response to the 2021 collapse of the 12-story Champlain Towers South in Surfside, north of Miami. The disaster killed 98 people, but a federal report on the causes of the collapse has been delayed until 2026. Some have said the law is already exacerbating a difficult condo market, leading to the fewest summer sales in greater Miami in 15 years.
The new legislation is likely to serve as a model for other states to look at their aging multifamily buildings, according to Donna DiMaggio Berger, a condo lawyer with Becker & Poliakoff in Fort Lauderdale who represents condo boards statewide. Consultant Peter Zalewski agrees that building age is in the spotlight.
"Realtors will tell you that location, location, location is the most important thing in real estate," said Zalewski, principal with the Miami-based CondoVultures consulting firm, in an interview. "Now, for condos in Florida, age, age, age is the primary factor."
To increase reserves that will help pay for needed repairs, some condo boards in the state are increasing their operating budgets, a move expected to lead to much higher monthly or quarterly dues for unit owners.
Other boards are levying special assessments, even though reserves are meant to be funded through the budgets rather than with special assessments, Berger said in an interview.
To be clear, not all boards will be disrupted by the regulation because they are already setting aside reserves for maintenance.
Owners pushed out
Even so, some owners, especially retirees on fixed incomes, won't be able to afford the higher fees that have already escalated in recent years due in part to increases in insurance rates, according to industry executives. But owners who can't afford the fees and want to move could have a tough sell because fewer buyers will be interested in taking on the costly maintenance expenses, even if the unit prices are deeply discounted.
"The Champlain Towers collapse is as significant a development to real estate in Florida as Hurricane Andrew was in 1992," said Zalewski, referring to the category 5 storm that devastated southern Miami-Dade County, causing billions in damages and eventually leading to a statewide building code. "It's changed the whole industry."
The state has 1.54 million condo units and nearly 27,000 condo associations, according to the Florida Department of Business and Professional Regulation.
Condos in densely populated Miami-Dade, Broward and Palm Beach counties account for much of the market. Some observers estimate the new law could affect 70% of the state's condo stock.
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Prospective condo buyers statewide will have access to the building inspection findings and will be able to negotiate prices based on the level of fees each building requires, according to Zalewski.
He expects unit prices in newer buildings to increase, while units in older towers will become depreciating assets. Some older buildings will be candidates for condo terminations, with developers buying up the bulk of the units and replacing the aging, obsolete structures with new buildings, he said.
Concern level high
Berger, who hosts a condo podcast called "Take It To The Board," was asked recently on the program how concerned Florida condo owners should be on a scale of one to 10. She said 8.5, pointing out that many people who moved to Florida decades ago were sold on the idea that owning a condo was much easier than maintaining a single-family home.
"They didn't realize that you can take care of the white box in which you live, but if you're not paying attention to the building in which you're located, you're going to have a problem," Berger said.
It was common for condo boards in Florida to defer building maintenance due to the expense, but that is no longer an option under the new law. Until the Champlain Towers South collapse, only two of Florida's 67 counties, Miami-Dade and Broward, required inspections of older buildings. Now it's a statewide requirement.
To help ensure condo boards comply with the requirement, the state received millions of dollars in new funding and added 65 staff positions at the Florida Division of Condominiums, Timeshares and Mobile Homes.
Meeting the Dec. 31 deadline will be a challenge for some boards that started the process late, and supply-and-demand issues likely will develop related to engineers and companies tasked with collecting reserves, according to Berger. The new law isn't as much of a burden for some other boards that already have been working with professional advisers and contractors to fund repairs, she said.
"If we end up with the safest condo housing stock in the country, that would be a good thing," Berger said. "It's just getting there."
The latest crisis
Meanwhile, the new law already appears to be hurting transactions, even before the deadline.
Miami-Dade condo transactions from the May-through-October summer buying season show there were 5,085 sales this year, an 18% drop from the same period of 2023 and the lowest number since the U.S. financial crisis of 2009, according to a study from CondoVultures. Zalewski blames the sales drop on the new requirements combined with the bearishness of the real estate market.
Statewide, condo sales in October totaled 6,499, down 19.9% from October 2023, according to the Florida Realtors trade group. It's the sixth consecutive monthly decline. Year-to-date sales of 81,209 represent a 10.9% drop from the same period a year earlier.
The median sale price of condos in October was $315,000, down 2.2% from the year prior. It was the fourth straight monthly price decline. The median means half the units sold for less and half for more.
Zalewski said the new law will almost certainly have real estate agents deciding not to accept Florida condo listings that could take months or possibly years to sell. Some agents said they will adapt.
"Does this make it a little more complicated? Yes," said Douglas Rill, a South Florida agent with Century 21 America's Choice in West Palm Beach, in an interview. "But so do higher interest rates and higher insurance costs. We've had crises before. Hurricanes. 9/11. COVID. This is just the latest."