Can hostile takeovers of condominium associations be prevented?

By Deborah Goonan, Independent American Communities

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It’s a new year. Time for new starts and fresh beginnings. It’s also the time of year that state Legislatures prepare for new sessions, where they may consider bill proposals to rein in excessive power and abuse in Association Governed Housing Communities.

After a brief hiatus, the condo termination or “deconversion” process is once again, starting to heat up. For readers that are unfamiliar, the process involves converting condominiums to traditional rental apartments. In most cases, a condo “deconversion” – also knows as a condo takeover – is initiated by real estate investors that purchase 75-80% of the units and then vote to terminate the condominium association, usually forcing remaining unit owners to sell their condos and vacate, or rent them back from the new apartment owners.

And, this time, the trend is spreading beyond Florida.

Note that, in the Sunshine State, Floridian condo owners are now discovering that recent legislation that was supposed to protect them from being forced to sell – potentially at a loss – isn’t really helping them at all.

Regular readers of IAC will not find this a bit surprising, as I have written extensively on this topic, pointing out all the loopholes in Florida legislation that allow real estate investors and developers to get around the intent of the law.

Let’s take a look at what’s been happening in the past year in Florida and across the US.

 

First, yet another story of a hostile condo takeover in Florida. The usual playbook of real estate investors is to acquire units that are already rented to tenants. This is easier to do where there is a low owner-occupancy ratio, and is part of the reason why it’s so difficult to obtain FHA or VA financing for condominium purchases. As a result, most “affordable” condominiums tend to be cash purchases by investors who never intend to reside in the community.

After acquiring a majority of condo units, the investors elect themselves to the condo board and assume control of the condo corporation. Then they are able to employ all sorts of manipulative tactics to pressure remaining owners to sell their units to them – often for depressed prices – until the point where they own 80% of units and can force a condo termination.

But don’t take my word for it. Read on. Emphasis added in bold on some of the article excerpts.

Condo owners in Tampa’s The Slade At Channelside battle to keep it from going all rental

Susan Taylor MartinSusan Taylor Martin, Times Senior Correspondent
Thursday, December 29, 2016 11:37am

A St. Petersburg-based company, Slade Owner LLC, has acquired more than 85 percent of the units and wants to make The Slade rental only. It already is leasing out the units it owns and needs to acquire only a few more to achieve its goal.

To that end, the holdouts charge, Slade Owner is trying to bully them into selling. They say the company arbitrarily reassigned long-held parking spots and has slapped them with assessments, demanding quick payment in full. And they say it has threatened them with the possibility of more assessments unless they accept what they call “ridiculously” low offers to sell.

Gregory Williams of Cardinal Point Real Estate, which is negotiating sales on behalf of Slade Owner, said the company has fully complied with state law. Prices being offered “significantly exceed” the average square foot price paid by buyers before Slade Owner acquired its units last year, he said.

“It should be noted,” Williams added, “that only approximately 3 percent of the residential units are reflected as homesteaded or owner-occupied. The vast majority of remaining individual unit owners are investors and acquired their units on a speculative basis in 2010, 2011 and 2012 when The Slade was distressed.”

But McArthur, Arzola and Martin note that they aren’t investors and that they bought their units before or after that time period, when prices were higher.

In response to the unintended effects of the 2007 law, the Legislature passed another law last year that increased protections for condo owners facing the forced sale of their units. Among them: Homesteaded owners who bought from the developer must be reimbursed for the price they originally paid, while owners who bought later must be paid the fair market value of their units

In a case involving a South Florida condominium, though, Florida’s Third District Court of Appeal issued a ruling in November that could embolden some bulk owners to ignore the new law’s protections for owners who don’t want to sell. That worries The Slade holdouts, who have hired an attorney and plan to keep on fighting.

Read More:

http://www.tampabay.com/news/business/realestate/condo-owners-in-tampas-the-slade-at-channelside-battle-to-keep-it-from/2307784

Hmmm. What about that law passed by the Florida Legislature in 2015? Well, I wrote about that back in October 2015.

Do Condominium Associations Remain Vulnerable to Hostile Takeover?

In order to get an investor group to reimburse you at least the full purchase price of your condo, you have to be an owner-occupant, your unit has to be your primary residence, and you would have had to purchase it directly from the developer (not a resale). You cannot owe any money to either the mortgage lender or the association, even if the association of hostile investors has just issued an unjustified fine or special assessment that you cannot afford to pay all at once. That’s just a few of the allowable exceptions for real estate investors or “bulk buyers” of condominiums. Bottom line, there are many, many loopholes that prevent a condo owner from being “made whole” in a forced condo termination.

And here’s yet another one, thanks to the Florida Third District Court of Appeals. Basically, the Third DCA has ruled that any law enacted after an association has been officially created may not apply! The only way new regulatory statutes can apply to Association Governed Housing Communities that predate the law: the governing documents must contain the necessary language that says new laws will automatically be incorporated into the Association’s Declaration of Covenants and Restrictions. This is known as “Kaufman language” in legal circles in the industry.

 

Court Finds Law for Selling Entire Condominium Projects is Not Retroactive

Samantha Joseph, Daily Business Review
November 22, 2016 | 0 Comments

A ruling from the Third District Court of Appeal found that Florida’s law governing terminations, or sale of entire condominium projects, does not apply to older properties.
That’s bad news for thousands of associations with declarations, or governing documents, predating Florida’s 2007 amendment to its condominium statute. It’s especially jolting for The Tropicana Condominium Association Inc., a Sunny Isles Beach group battling minority owners over a blocked sale in one of Miami-Dade’s most expensive submarkets.
The Tropicana association wants its members to approve a sale as developers swarm the neighborhood scooping up modest buildings at top dollar to replace them with glitzy high-rises. But a small group of owners, accused of being straw buyers, moved to prevent potential sales.

Read more:

http://www.dailybusinessreview.com/id=1202773063697/Court-Finds-Law-for-Selling-Entire-Condominium-Projects-is-Not-Retroactive?slreturn=20161104080006

And, surprise, surprise. This interpretation of Florida statute once again works to the advantage of real estate developers, in this case, owners of the Ritz-Carlton.

While hostile takeovers have been allowed to occur all over the state with only 80% of condo owners (actually hostile investors) approving termination, in THIS case, it appears that straw buyers arranged by Ritz-Carlton have been able to block a condo termination by reverting back to pre-2007 Florida Statute, which required unanimous (100%) consent for termination.

Conveniently for Ritz-Carlton investors, there is now no danger of another investor acquiring The Tropicana, a vintage condo building, in order to raze the structure and put up an even taller condo tower next to the Ritz-Carlton. After all, we cannot allow another group of real estate investors to come in and block views for Ritz-Cartlon owners, can we?

Yes, it’s really that perverse.

 

What’s happening in other states?

Now if you think you’re safe from this insanity, simply because you own a condominium in a state other than Florida, think again.

I’ve said it before, and I’ll say it again. Florida was merely the pioneer of this hostile condo takeover process. You can bet your bottom dollar that investors in other states – and around the world, for that matter – will follow suit. It’s just a matter of time, combined with market conditions that make it profitable for condo deconversions.

Below are some more examples.

And, keep in mind, many of these takeovers won’t be reported in local or national news. They will happen in the shadows. Smaller condo associations are particularly at risk, as well as any condo association with a low owner-occupancy rate, or any financially distressed association with high vacancies that happens to be in a desirable location for future tenants.

Whatever happened to … Westminster-Canterbury’s Virginia Beach condo-buying court battle (VA)

By Kimberly Pierceall
The Virginian-Pilot

Excerpts:

The “hostile takeover” described in the lawsuit didn’t involve Wall Street or a feuding country, but rather the towering retirement community next door.

In the shadow of Westminster-Canterbury on Chesapeake Bay are 30 condos with uninterrupted bay views. Over the years, Westminster-Canterbury has bought 22 of the condos, renting them to older clients who could live more independently, paying up to $437,300 and $3,725 a month as of 2010.

The nonprofit had already bought enough to control the votes on the condo association board, changing the number of seats from five to three and appointing two of its executives to preside over the meetings that take place at Westminster-Canterbury. At a July meeting, the only resident on the board was absent.

But Westminster-Canterbury needs only two more condos to control four-fifths of the votes, a noteworthy number that would allow it to dissolve the condo agreement, if it wanted to, leaving questions about what could happen to the remaining few residents.

[Westminster-Canterbury’s president J. Benjamin Unkle Jr] said he’s not prepared to make any promises that might limit what any future CEO or board might want to eventually do.

“You can’t make a promise that empowers one or two people to block the best use of that land and the renovation of that land and those structures.”

 

Read entire article:

http://pilotonline.com/business/real-estate/whatever-happened-to-westminster-canterbury-s-virginia-beach-condo-buying/article_6e683daf-aafb-5c52-a4be-5dc3fd4f724e.html

 

Wow, how about that statement! This condo association president, who has his eye on the adjacent Casa del Playa condominiums, completely rejects the notion of private property rights.

Does anyone truly believe that good will alone will prevent a non-profit corporation from forcing a condo termination?

According to Unkle, 80% Majority Rules. Tyranny of the majority? Communism?

Why should a group of investors or even a non-profit corporation be guaranteed their “rights” to determine what is the “best use” of land or residential structures?

What if the result is that we force elderly condo owners to move out of their homes against their will, unable to afford alternative housing? Or should we force owners to become tenants once again?

Is that in the public interest?

 

Willowbrook residents sue to block condo sales (PA)

By Alex Rose, Delaware County Daily Times
POSTED: 03/30/16, 10:28 PM EDT | UPDATED: ON 03/31/2016 4 COMMENTS

Excerpt:

“People are going to get a very small amount and most of them will not be able to find another place to live because of the amount they’re going to get,” said [Attorney Leslie A.] Margolies. “Right now, they’re panicked because if I am not successful (with the complaint), April 13 their property is going to be sold and they’re going to be out on the street.”

Margolies noted the auction is expected to take place at a law firm in Berks County and said she believes the aim is for another Berger entity to purchase the entire property at a reduced price.

“The appraisal is rigged, the auction is rigged, the way they got the 80 percent is fraudulent,” she said. “The long and the short of it is they could have told my clients from the very beginning, ‘This is what we plan to do, so you’re going to lose your property anyway, so let me give you a fair price.’ … They could have done this the right way and they chose to do it the wrong way.”

Read entire article:

http://www.delcotimes.com/article/DC/20160330/NEWS/160339950

 

And here’s the result of that takeover attempt. Willowbrook Condominiums is now Willowbrook Apartments. It’s completely predictable now. The playbook has been well-established in Florida, and copied in Pennsylvania.

 

Willowbrook residents can’t halt sale of condos; lawsuit continues

By Alex Rose, Delaware County Daily Times
POSTED: 06/17/16, 10:02 PM EDT | UPDATED: ON 06/18/2016 12 COMMENTS

An Upper Chichester apartment complex at the heart of a class-action lawsuit sold last month for $18.5 million and former individual unit owners now say they are being asked to rent what used to be their homes.

“Basically, they wanted the complex and now they have it,” said Christine Scott, lead plaintiff in the lawsuit encompassing claims from a dozen former owners at Willowbrook Apartments. “No matter how nice that may be for them, it cannot make what is happening to people around here right.”

She added that the $100 off per month is nice, but said it is still not cheaper than owner-occupancy for her. Scott noted several of the individual owners at the complex also rent their units out, sometimes at little or no cost to aged or disabled family members.

Willowbrook Condos was the only place that I could afford to buy and pay ongoing expenses in this area,” she said. “I am moving in with a friend as I cannot afford to rent my own unit here, as I live on a fixed income. Some of the people who ‘decided’ to sign the yearly lease cannot move as they have not received any proceeds from the auction yet or the proceeds will only pay a portion of or all of the mortgage off, leaving them with little or no money to move anywhere else. Others have renovated their units to new condition and do not want to leave their investments.”

Read more here:

http://www.delcotimes.com/article/DC/20160617/NEWS/160619681

 

Here’s a report from Arizona, another popular destination for retirees and real estate investors alike. This one has video coverage from ABC 15.

Is your home at risk for takeover? State law allows for condos to be forcibly taken (AZ)

Joe Ducey, Courtney Holmes
6:31 PM, Mar 1, 2016
6:39 PM, Mar 1, 2016

It’s happening again. People who paid their mortgages and are not in foreclosure, being forced out of their homes.

We first told you about this weird law, when a man bought a condo near 35th Avenue and Camelback only to find out Grand Canyon University terminated the HOA and took over the units.

This time it’s people who bought within Jamestown Condominiums in Phoenix, in 2008.

Read more (VIDEO):

http://www.abc15.com/news/let-joe-know/is-your-home-at-risk-for-takeover-state-law-allows-for-condos-to-be-forcibly-taken

 

Who is harmed here? A first-time homebuyers – several of them minorities. The very people who reckless housing policies over the past two decades have supposedly been designed to “help.”  And, of course, older condo buyers hoping to acquire an “affordable” home for their Golden Years.

Well, tragically, these condo owners have discovered that their homes are neither affordable nor good investments.

But, hey, who cares, as long as the real estate investment sector makes a ton of money?

Another target: “affordable” older condominiums that investors can turn into lower – rent apartment buildings. That’s the order of the day in Chicago.

Deconverting condos feeds renters’ growing demand (Chicago, IL)

Gail MarksJarvis Gail MarksJarvisContact Reporter
Chicago Tribune
Stand just about anywhere in the Loop and look up. What do you see?

Cranes.

They reach into the sky throughout the city’s core and are constructing upscale, high-rise apartments to meet the demand of millennials and empty nesters with urban tastes and plump paychecks.

Demand for rentals is fueling another type of development, too, but this one doesn’t involve cranes. From Lincoln Park to the South Loop, developers are trying to convert older condo projects into apartment buildings for people who want rents a little cheaper than those in the glitzy new high-rises.

Enticed by the opportunity to get a steady flow of high rents, and with low-interest-rate loans available, developers and investors see an opportunity. They are scavenging the Chicago area looking for condo buildings with a lot of units occupied by renters. In a process called deconversion, they offer to buy every condo in the building at a price that presumably is higher than individual condo owners could get on their own.

Under Illinois law, if a developer convinces 75 percent of a building’s owners to sell, unwilling owners can be forced to go along and must sell their units. Then the developer buys all the units, brings in the remodelers, spruces up the building, and attempts to rent the units at prices above what amateur landlords were getting for their individual units.

Read more:

http://www.chicagotribune.com/business/ct-condo-conversion-0626-biz-20160624-story.html

 

Yes, in Illinois, up to 25% of condo owners can be forced to sell their homes – potentially at a loss – because 75% of condo owners (really one corporate “person”) says so.

The article is written in a way to put a positive spin on the process, as if condo owners should be more than happy to cash out of their older condo units, so that an investor can generate millions of dollars in rental income, and eventually resell the same units as condominiums again in the future.

Are you buying it?

Can this travesty of justice be prevented?

Only if voting interests in condo associations are allocated to the Owners (real people) instead of to each individual condo unit owned (property).

But you can bet that won’t happen anytime soon. The real estate industry, and especially trade groups Community Associations Institute and National Association of Home Builders would vehemently oppose any housing policy that would limit one’s ability to stage a hostile condo corporation takeover.

After all, there’s just too much money to be made.

 


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