Minority investor-owners’ investments turn sour, full-time residents are displaced.
By Deborah Goonan, Independent American Communities
People buy condo units for several different reasons. Some buyers purchase a unit in a condominium with the intention of making it their primary home. Other buyers may intend to live in their condo full-time or seasonally upon retirement, leasing to tenants in the meantime. But a growing number of buyers purchase one or more units purely as investments, with plans to rent them on a long-term or short-term basis.
And with the popularity of short-term rentals growing, especially in or near vacation destinations such as Orlando, many condo associations might as well be hotels.
In fact, one of the most contentious controversies in many condominium associations is an ongoing feud between owner-occupants seeking a peaceful home and a sense of community vs. absentee investor owners seeking to reap substantial income renting their units by the week or by the night.
So it comes as no surprise to read the recent report about Legacy Grand in the Orlando Sentinel. An investor group has acquired 80% of condo units, creating a voting bloc that gives it a controlling corporate interest in the association. The majority controlling group has decided to terminate the condo association and convert the entire project to a for-profit hotel business.
However, the investors taking over Legacy Grand condo association have also declared bankruptcy, making it unlikely that the remaining 20% of condo owners will receive fair compensation for units they have been forced to sell and vacate.
The article points out, as I have in previous articles, that a Florida statute enacted in 2015 offers limited help for owner-occupants who qualify for a homestead exemption, but offers no consumer protection for the majority of owners who do not make a Florida condominium their primary residence.
So, if you are a small-time investor who has purchased – or intends to purchase – one or a few Florida condo units for rental income, in the hopes of selling for a profit later on, recognize that you are putting your investment dollars at considerable risk.
Likewise, if you plan to purchase a condo as your primary residence, know that a wealthy investor group, or any group of neighbors that owns 80% of the units in your condo association, can decide to kick you to the curb so that they can maximize their profits. And you cannot count on being “made whole” on a termination and conversion deal, due to various loopholes in Florida Statute.
Owners face losing condos in Kissimmee
Polk County resident Laurel Harris and a handful of Legacy Grand condo owners — including a few full-time residents — have been put on notice by their association that the Kissimmee property is becoming a hotel.
The main reason the condo association at Legacy Grand is able to transition the condo property into a hotel, against the wishes of some owners, is that an ownership group holds more than 80 percent of the units and controls the association.
The “takeover,” as Harris and her attorney call it, is a new twist on something that has been happening in Florida for years: Investors bought apartments at the height of the real estate market and tried to sell them as condos. But the real estate market crashed and left the buildings largely empty. Throughout the state, investors who accumulated large shares of units have been able to pressure the few remaining owners into selling so they could control the entire property.
One reason condo terminations have become popular is that investors gain the ability to buy out owners and manage the entire property, instead of just chunks of it. Investors have said conversions can better serve the complexes by giving them a sense of overall unity and direction.
Orlando attorney Justin Clark said several of his clients who own units there, including Harris, are being overpowered by an ownership group simply because it has amassed the overwhelming majority of units and rewrote condo rules to turn the property into a hotel.
Judicial Arbiter Gregory D. Hoffman cited the Legacy Grand ownership group in 2011 for co-mingling rental income and sales proceeds from the Legacy. He found that condo converters, including Celebration resident Ralph Kirkland and Lithia resident Ken Franklin Jr., had “engaged in deceptive practices, made material and misleading representations and omissions which were relied on by buyers” to convince them they were making a safe investment that would be rewarded with rental income. The arbiter awarded nine condo unit owners more than $3 million in damages, but a bankruptcy has delayed those payments, records show.
Kirkland said he sold his share in 2010, lost his money during the downturn and has been residing with his wife in one of the Legacy Grand units for years.
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