The Troubled, and Troubling Condo Market

As a recovering condo manager and condo consultant, I follow the news and updates on condos as often as I can. What recently caught my attention was a short slide presentation on Florida's condo market.

The prognosis for Florida condos is grim. The 2021 collapse of Champlain Towers South in Surfside, Florida had a cataclysmic impact on the condo market. Insurance costs have skyrocketed, assuming that insurance can still be obtained in a State that is prone to hurricanes and surrounded on three sides by rising water levels. Some insurers are walking away from the condo market altogether, which is a challenge that also faces condos outside of Florida.

Advancing Florida's structural recertification on mid- and hi-rise condos from 40 to 30 years has created an unexpected crisis for condos at or close to this threshold. The market for those condos dried up quickly as buyers recognized that they could be faced with a large assessment if they bought a 29-year-old property. The stock of new condos available in the Florida market causes a further decline in demand for older condos.

Savvy developers have swooped in on the Florida market seeking a bargain, attempting to buy out condo owners and convert buildings to revenue properties. The problem they are encountering is that the threshold is high for owner approval. A small minority of owners in a condo can block a sale by continuing to delude themselves that their market value has not declined.

Many developers have walked away from the market for this reason. They may be waiting until there's sufficient pressure to convince the holdouts that a low sale price is better than no sale at all.

For a condo, this is an apocalyptic scenario and it is not limited to the Florida market. While initiatives to help condos survive these difficult times are emerging, one needs to look at how this crisis has developed over time for long-term solutions. It certainly didn't happen overnight. Just as climate change has become more critical over the last several decades, a financial crisis in condos has been growing.

Whenever I read responses to a condo article addressing these issues, I see comments like this: "...needed maintenance has been deferred for far too long, to keep the fees artificially low." The reader stated that he is the treasurer of his Florida condo. He has my deepest sympathies.

This is not a Florida problem. This is a universal problem with North American condos, and may actually be global. The modest international research I've done reveals that condos now proliferate around the world. It seems that even in Malaysia, condo owners grumble about not understanding why their fees are so high and wonder what is done with their money.

Circling back, the crux of the matter is that these financial problems are being passed on to successive owners who had no hand in creating them. An owner who is assessed a large lump sum just after purchasing a condo is paying off the debt left by previous owners.

This is why there is increased legislation governing reserve funds and illustrates the purpose of the fund as well as the study that guides volunteer boards to set aside appropriate savings for infrastructure replacements. The intent is to level the playing field so that aging condos occupy their share of the market and can compete comfortably with newer condos.

What is happening in Florida can play out in any condo market. The tragedy of the collapse of Champlain Towers South shocked the world. It also drew attention to the consequences of artificially low fees over a long period of time, and underlying governance issues, as well as owner resistance to an assessment. The tragedy made the devastating repercussions clear, but it's still not clear that condo owners are getting the message.

My experience over the last three years as a consultant is that condo boards agree that a financial crisis is looming but want little to do with understanding the extent of the problem and developing strategies to address it.

Condo boards are unpaid, untrained, have almost always inherited a mess, and will be vilified by the owners they are attempting to protect. It's hard to argue that they should be the ones to face those consequences, but in reality, it's the only way to avert the disaster that is already playing out in the Florida condo market.

The condo mindset needs to change from artificially low fees to 'how do I protect the equity I have invested in this condo?" It's a very good question. Kicking that around at the next owners' meeting could at least get the conversation started.