By Deborah Goonan, Independent American Communities
In cities across the U.S., the real estate market is hot, and land is scarce. Developers are on the lookout for investment opportunities. Some have their eye on older, low-rise condominium buildings and developments located on prime parcels of land.
The goal — gain control of the association, buy out the owners, and terminate the association. Then demolish the dated housing and build two or three times as many apartments or perhaps luxury condo towers targeted to high-end buyers.
Some condo owners welcome the opportunity to cash in by selling to a developer in a seller’s market.
But others prefer to hold onto their properties, and not be forced to sell their condo units at relatively low appraised values in a hostile takeover attempt.
An article in Crain’s Chicago reports that the condo board of 540 N. Lake Shore Drive recently changed the association’s rules on rental restrictions. The new rule prohibits former condo owners from remaining in their units rent-free while looking for alternative housing, a deal that some fomer condo owners have made with MCZ Development, as part of their recent sales contracts.
In response, MCZ has filed a lawsuit against the condo association, claiming that changes to rental restrictions require 51% of total voting interests in the association to approve new rules. An attorney for MCZ says that the new rule is meant to deter owners from selling to MCZ Development.
MCZ has reportedly accumulated up to 31 units of the 150-unit low-rise condominium building with a view of Lake Michigan.
Why would the condo board seek to evict non-owner residents after they sell to a developer?
The condo board’s apparent intent is to slow down MCZ’s acquisition of multiple units in the association, and accumulation of shares of voting interests in the condominium corporation.
The developer’s acquistions could ultimately lead to a hostile takeover of the condo association, placing MCZ in control of the condo board and the condominium termination process.
When a developer controls the termination process, remaining owners are often offered artificially low prices for their condos, because the party initiating the termination conducts the initial appraisal of the condo units. If owners disagree with appraised values, they must hire their own appraiser, and, if there is still disagreement on the value of the unit, a third appraiser is chosen to determine a fair value.
(See Reference Section for Illinois Statute regarding sale of the condominium association.)
Generally speaking, holdout minority condo owners may be at a significant financial disadvantage when a developer is driving the termination and redevelopment process.
Under Illinois statute, if a super majority of owners (75% of total voting interests) are interested in cashing in on a brisk real estate market, they could opt to work together to offer the entire condominium property for sale. (See Charlotte, NC below)
Condo board moves to evict residents who sell to developer
By DENNIS RODKIN
March 27, 2018
Crain’s Chicago
A Streeterville condo building’s board recently gave itself the power to kick out residents who sell their units to a real estate firm that’s been buying them up.
Since July, a development firm has spent at least $6.9 million and possibly as much as $12.8 million buying condos at 540 N. Lake Shore Drive. In some of the units, the former owners have a deal with the buyers—legal entities associated with Chicago firm MCZ Development—to stay on as residents rent-free and temporarily.
Last week, the board of 540 Lake Shore Drive’s homeowners association unanimously voted to change the building’s rules on renting condos to specifically include the situation of those former owners, according to a lawsuit MCZ filed last week. The new rules go on to say that the board has the authority to evict those residents, according to the suit.
“Let’s call a spade a spade: The board is trying to interfere with a prospective sale” by other residents who might want to sell to MCZ, said Michael Delrahim, managing partner of Chicago law firm Brown Udell Pomerantz & Delrahim, a Chicago law firm.
Read more:
The Charlotte Observer, by contrast, reports on the sale of a condominium with owners in charge of the process.
In this case, owners of an older condominium housing project are taking a proactive stance. They recognize that, after more than four decades, their property is essentially obsolete. Fortunately, Carmel Chace happens to be well-located, with land that is ripe for redevelopment.
So, in this case, the condo association has decided to list the entire site for sale to the highest bidder.
There’s no doubt that some holdout condo owners won’t be happy about being forced to sell and move to a new home. It’s an unaviodable risk of common interest ownership in multifamily housing.
However, by comparison to a hostile takeover where a developer or a bulk investor group is in the driver’s seat, Carmel Chace HOA members are likely to receive more attractive offers for their units.
The overall trend is that condo owners of mature housing are disposing of their real estate investments, for better or worse, and sometimes, despite their objections.
This plan could ‘totally transform’ a major intersection in south Charlotte
BY ELY PORTILLO
elyportillo@charlotteobserver.comMarch 20, 2018 07:30 AM
Updated March 19, 2018 06:06 PM
A condominium development in south Charlotte is on the market, with all the owners having agreed to sell their land to a developer at the same time.The Carmel Chace Homeowners Association is seeking a buyer for their whole 21-acre site, located off Carmel Road just north of the intersection with Johnston Road. They’ve hired broker John Vickers and KW Commercial to find a buyer for the site.
“This could be completely transformed,” Vickers said. The site is now occupied by 93 condominium units that date to the 1970s, and a new buyer would likely seek to rezone the site for a new development.
Read more here: http://www.charlotteobserver.com/news/business/article205920664.html#storylink=cpy
Reference:
Illinois condominium statute – sale of property
(765 ILCS 605/15) (from Ch. 30, par. 315)
Sec. 15. Sale of property.
(a) Unless a greater percentage is provided for in the declaration or bylaws, and notwithstanding the provisions of Sections 13 and 14 hereof, a majority of the unit owners where the property contains 2 units, or not less than 66 2/3% where the property contains three units, and not less than 75% where the property contains 4 or more units may, by affirmative vote at a meeting of unit owners duly called for such purpose, elect to sell the property. Such action shall be binding upon all unit owners, and it shall thereupon become the duty of every unit owner to execute and deliver such instruments and to perform all acts as in manner and form may be necessary to effect such sale, provided, however, that any unit owner who did not vote in favor of such action and who has filed written objection thereto with the manager or board of managers within 20 days after the date of the meeting at which such sale was approved shall be entitled to receive from the proceeds of such sale an amount equivalent to the greater of: (i) the value of his or her interest, as determined by a fair appraisal, less the amount of any unpaid assessments or charges due and owing from such unit owner or (ii) the outstanding balance of any bona fide debt secured by the objecting unit owner’s interest which was incurred by such unit owner in connection with the acquisition or refinance of the unit owner’s interest, less the amount of any unpaid assessments or charges due and owing from such unit owner. The objecting unit owner is also entitled to receive from the proceeds of a sale under this Section reimbursement for reasonable relocation costs, determined in the same manner as under the federal Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended from time to time, and as implemented by regulations promulgated under that Act.
(b) If there is a disagreement as to the value of the interest of a unit owner who did not vote in favor of the sale of the property, that unit owner shall have a right to designate an expert in appraisal or property valuation to represent him, in which case, the prospective purchaser of the property shall designate an expert in appraisal or property valuation to represent him, and both of these experts shall mutually designate a third expert in appraisal or property valuation. The 3 experts shall constitute a panel to determine by vote of at least 2 of the members of the panel, the value of that unit owner’s interest in the property. The changes made by this amendatory Act of the 100th General Assembly apply to sales under this Section that are pending or commenced on and after the effective date of this amendatory Act of the 100th General Assembly.
(Source: P.A. 100-292, eff. 1-1-18.)