By Deborah Goonan
Over the past few months, I have been writing about the politics, perils, and pitfalls surrounding condominium terminations and de-conversions in Florida. (A de-conversion occurs when a developer dissolves the condominium association and rezones the complex as a traditional apartment community) In case you’ve missed this story, which has received national media attention, you can read a brief summary about it here.
Several colleagues have expressed horror and disgust at the process of hostile condominium takeovers in the Sunshine State, but didn’t think the same thing could happen in their states.
But I’ve been warning folks for many months now: what happens in Florida can happen anywhere. Now it’s happening in Chicago, where some of the city’s most well-known condominiums are being de-converted to pricey rental apartments.You can read about it in Crain’s article linked below.
While some condo owners may welcome the opportunity to cash out their equity to a willing buyer, others will inevitably be forced to sell against their will. And Chicago condo owners might not get much money for their units either, if opportunistic investors or developers simply follow the same formula that has worked in Florida since 2007.The typical takeover scheme works like this:
1) Take one condominium in a prime location, where land values are high or there is huge potential for rental income.
2) Target vulnerable condo associations with aging infrastructure, lots of assessment delinquencies, high vacancy and foreclosure rates.
3) Negotiate a deal to buy distressed or vacant units for pennies.
4) As soon as majority ownership is attained, take over the Association Board in the next “election.”
5) Use the authority of the Board to pressure remaining owners to sell. For example, issue exorbitant special assessments, amend the governing documents at will, lease multiple units to inconsiderate tenants. Anything that will convince owners to sell at a low price to escape the chaos.
6) When the 75% or 80% ownership threshold is met, hold a vote for termination of condominium. It doesn’t matter that the other unit owners don’t want to be forced out of their homes, because the party that owns a super majority of units wins that “election” by default.
7) Proceed to sue dissenting owners in court, to obtain their units, often under terms that are unfavorable to the minority owners.
8) De-convert to apartments and start collecting rent checks or, alternatively, level the building and build a taller, more luxurious condo tower with units selling for millions.
Look out, Chicago!
By Alby Gallun, Crain’s Chicago Business