Provisions expected to spark South Florida market

FOR MORE INFORMATION GO TO OUR WEBSITE

Two bills that supporters say will help bolster Florida's condo market are one step away from becoming law.

House Bill 561 and Senate Bill 840 have been approved by committees that needed to review the bills before they are sent to the Senate and House for a final vote.

A key element of both bills: Bulk buyers of condominiums won't be held liable for construction defects or other problems related to the project's original developer.

Industry experts say this will help move unsold units in many new or converted condo projects in the region.

State laws put developer liabilities onto any investor that acquires multiple units in a project.

"Successor developer liability is a huge concern for any bulk buyer because they are stepping into the shoes of the developer," said David Metalonis, a Colliers Abood Wood-Fay broker who represents sellers and buyers in bulk condo deals.

"[Buyers] are extremely hesitant to step into to those shoes and that risk is factored in the price."

Peter Zalewski of CondoVultures said if the provision passes, it could bring more institutional buyers into the bulk condo market.

"I don't think it's going to have that much of an impact on private equity investors - they are the ones that have been closing bulk deals - because their mentality is no judge would rule against them and call them a developer," Zalewski said.

"But the institutional investors - those who want to spend a minimum of $25 million, the hedge funds, the pensions funds - tend to be more focused on fundamentals. I've talked to many hedge funds that want to get in the game, but there is no way they can overcome the liability issues. That is why you haven't seen institutional [bulk condo] deals."

If they become law, the bills could also be an incentive for institutional lenders to start financing bulk condo deals, he said. The additional lending options and the potential influx of institutional buyers into the condo market could also increase the price of bulk deals by as much as 15 percent, said Zalewski, a former reporter for the Daily Business Review.

Sen. Eleanor Sobel, D-Hollywood, said she is pleased Senate Bill 840 "has soared through its three committees with unanimous ‘yes' votes."

"I am confident that the Senate will act quickly to approve this good bill," she said in a prepared statement. "SB 840 has bipartisan support and provides an immediate stimulus to Florida's condominium market."

HB 561 and SB 840 are two of a number of bills that included "distressed buyer language" to relieve bulk buyers of liability in this years legislative session.

"A lot of lenders, developers and associations want it to pass," said Donna Berger, a community association attorney who helped draft HB 561 and other related bills.

Rep. Maria Lorts Sachs, D-Delray Beach, who co-sponsored HB 561, said it is essential to the economic recovery of South Florida.

"Sometimes we have to take to steps back in order to make things fit to this economy," she said. "If that means going back on laws that we passed a couple years ago, so be it. We need to reflect the needs of this economy and do whatever it takes to bring back our market and give relief to unit owners who are suffering."

The house bill would block condo associations from requiring individual owners to purchase casualty insurance. It also extends to 2019 the deadline for condo associations to add sprinkler systems to older buildings. The previous deadline was 2014.

Buildings with four stories or fewer would be exempt from the state-mandated retrofitting. Previously all buildings were subject to having sprinklers installed.

"The main goal of 561 is to provide more relief for struggling associations," Berger said.

Berger said that retrofitting costs can average $10,000 in special assessments for each unit owners, depending on the size of the development.

Opponents of the bill include fire marshals and firefighters, inspection industry groups and the sprinkler industry. They claim the retrofitting of sprinklers is a safety issue.

Last year, Gov. Charlie Crist vetoed a similar bill and has said he would likely do the same this year for any bill that tried to push back the deadline to add fire sprinklers.

Berger said she met with the governor several weeks ago regarding the issue.

"I explained to him this is a billion-dollar issue for the sprinkler industry and that the state of Florida is the only state that did not make provisions for existing buildings" to be grandfathered in, she said. "It's our strong hope that we opened his eyes."

Source: http://www.dailybusinessreview.com/news.html?news_id=61750

Polyana da Costa can be reached at (561) 820-2065.