A lack of developable land in Florida, coupled with a rise in demand for commercial and residential real estate, is leading savvy investors to redevelop aging condominiums.
As a land-constrained peninsula surrounded by water on three sides, Florida is home to a limited number of available development sites. This scarcity of land is compounded by a surge in new residents, with the Census Bureau reporting that 320,000 Americans relocated to Florida in 2022 – more than any other state.
An increase in new residents and businesses is fueling historic demand for residential and commercial real estate throughout the state, leading out-of-market developers to pursue the redevelopment of aging condominiums as an entry point into the market.
Last year, a series of laws impacting nearly 1.5 million condominium units in Florida – along with the 28,000 associations that oversee these properties – were passed by the state legislature.
These policy changes regulate how condominiums are maintained, when structural inspections must take place, and how association budgets and reserves are managed. This is creating a perfect storm for residents and associations which are faced with expensive repairs amidst looming deadlines.
Aging condominiums are especially challenged as their residents weigh required upgrades, against the reality that their buildings may be approaching functional obsolescence, making the underlying land more valuable than the structures themselves.
“In some cases, associations are bypassing compliance with the new laws in favor of terminating their condo and selling their property altogether. This dynamic is growing the inventory of available land and spelling opportunity for real estate developers and investors pursuing deals in Florida,” explains Carter McDowell, a Partner in Bilzin Sumberg’s Land Development and Government Relations Practice.
As a result of the new legislation passed in 2022, every Florida condominium over 30 years old must undergo a structural evaluation conducted by a certified engineer and report the study’s findings to the local municipality. These reports ultimately become public record, creating a trove of information.
“An in-depth review of these engineering reports, along with a deep understanding of local land use and zoning allowances, enables a trained eye to determine which properties are worth pursuing,” explains Anthony de Yurre, a Partner in Bilzin Sumberg’s Land Development and Government Relations Practice.
“While properties publicly listed for sale tend to attract intense competition, identifying off-market condominiums whose residents may be amenable to a sale is part art, part science,” says de Yurre.
The most recent round of condo redevelopment in South Florida has centered primarily on premium waterfront sites which are destined to be redeveloped as luxury residential or hotel properties.
However, a closer look reveals that many aging condominiums are situated far from the water. In many instances, older properties located inland can be purchased at a lower per-unit price point and benefit from more flexible zoning, opening the door to a wider range of uses.
“So much emphasis has been on the waterfront, but in many cases, there is even greater opportunity inland, because in some cases the land is already zoned for higher density as a matter of right,” says Bilzin Sumberg Partner Sara Barli Herald, who focuses on public-private partnerships, affordable housing, and land development.
“From sites primed for affordable and market-rate housing, to office and retail, acquiring an inland property at a lower cost basis can result in a more favorable long-term investment. The key to maximizing returns is understanding what can be developed, and at what cost, prior to executing on a purchase,” adds Herald.
Learn More About Condo Redevelopment at Bilzin Sumberg’s 2023 Redevelopment Conference
At Bilzin Sumberg, a multidisciplinary team of attorneys specializes in identifying Florida condominiums which may be ripe for redevelopment based on a host of factors, including age, required repairs, the association’s finances, property values, tax liabilities, insurance costs, and current and potential zoning.
This level of expertise allows the Firm to guide developers and investors through all phases of development, including the initial acquisition, securing entitlements, obtaining financing, and construction. In many instances, this involves creation of a joint venture which includes a local development partner that is well-versed in municipal affairs.
Interested in understanding the ins and outs of condo redevelopment in Florida? Request an invitation to Bilzin Sumberg’s 2023 Development Conference, taking place on March 15th in Miami, Florida.
*This has been republished with permission from The Real Deal. Click here to access the publication.