Skip To Content
    • Home
    • Blog
    • After Surfside, questions around commercial buildings and business model of condo associations are brought to forefront

    After Surfside, questions around commercial buildings and business model of condo associations are brought to forefront

    The June 24 tragedy that left nearly 100 dead after a condo building collapsed in Surfside, Florida, has prompted swift review of condo-building reviews, talk of new legislation and more questions than answers.

    In the Miami area alone, two out of every three condo buildings are more than 30 years old, the Wall Street Journal reported. That’s around the time when serious — and expensive — structural repairs are needed.

    The mayor of Miami-Dade County earlier this summer issued an audit of all older buildings in the county after the collapse. A task force has been formed to recommend changes to state of Florida law.

    But the problem stretches beyond Florida, to tens of thousands of structures across the country, some of which were built during the initial U.S. condo-building boom in the 1960s.

    The official cause of the Surfside building collapse remains under review. It will take months, possible a year or longer, before an official determination is made. Meanwhile, condo owners, as well as other owners in the real estate industry, are taking a serious look at how and when their buildings are inspected and when repairs are made.

    One of the biggest topics that’s come up is the 40-year recertification required for condo buildings in many states, including Florida. The Surfside building was going through its recertification process when it collapsed.

    Experts say 40 years is too long to wait to identify serious structural problems.

    “All of these condo buildings need to be looked at every 10 years from the time they’re built,” said Tyler Berding, founding partner of Berding & Weil LLP, a Walnut Creek, California-based law firm that focuses on construction-defect litigation. “Inspectors who come along at the 30- or 40-year point have no baseline in order to judge how extensive some damage has been.”

    Anthony Graziano, CEO of Denver-based real estate advisory firm Integra Realty Resources, said, at minimum, there’s now heightened awareness and sensibility about the 40-year recertification process. Legislation to change it will likely need to be addressed at a state level.

    Graziano said even though many building records are in the public domain, they’re frequently not readily accessible to the public. In general, he said, there needs to be more transparency for condo-unit owners to know what’s going on in their building, how much in capital reserves have been allocated for repairs and other items.

    Some states have started to address this, sometimes in response to other tragedies. California passed legislation in 2015 after six students died in Berkeley after a fourth-floor balcony they were standing on collapsed. The law standardized balcony and deck inspections in multifamily buildings.

    In general, Berding said, inspections don’t usually go beyond repairs that are more obvious, like roof replacements, to take into consideration corrosion or rot in structural components of a building, which are frequently not visible.

    But, he continued, the business model of condo associations has created some of the problems being dealt with today.

    Frequently, costly repairs are deferred through changing condo associations and unit ownership, meaning they don’t get addressed until it’s far too late — then the tab racks up to a staggering amount. There’s also lot of turnover in condo buildings, Berding said; the average condo owner holds on to their unit for six to seven years.

    Not to mention, there’s frequently pressure on condo boards to keep costs, including for repairs, as low as possible — not to mention the board is comprised of unit owners, too.

    “(The business model) allows members to determine how much or little they want to pay,” Berding said, adding board members are usually not equipped with the background or expertise to make decisions rationally.

    Graziano said it’s possible a third-party consultant, such as an engineer, could be brought on to help boards make decisions about needed repairs, but it’s still ultimately up to the association on how much they’re willing to pay.

    There’s also a lot of resistance and tension about making repairs that’ve built up over time, during the tenure of previous associations and unit owners.

    Condo boards are also usually underfunded, meaning there’s usually not enough in reserves to pay for big repairs.

    “They don’t want to put money away that’s not going to be used for 10 to 15 years,” Berding said.

    Graziano said difficult conversations have taken place around the responsibility of a condo community, local government and inspecting agencies — and who takes on liability.

    He said because of Surfside, most associations will likely revise their current reserve structure and increase reserves in older buildings.

    But the fundamental issue of transparency remains, Graziano continued. Condo boards that are upfront about inspections, plans for near-term capital improvements, costs of repairs and capital reserves to unit owners should be rewarded by the market with higher unit values.

    And while the Surfside tragedy has put the spotlight on condo buildings specifically, Graziano said the issues are not completely isolated to condos. Even private commercial owners need to be mindful of setting aside long-term capital reserves for major replacements.

    “We are seeing a much higher degree of awareness with clients nationally asking for economic reserve studies, updating their capital plans and engaging engineers and other professionals on capital assessments,” Graziano continued.

    Berding said while the business model of condos has created problems, legally, not much can be done to reverse reliance on it for existing properties — though, possibly, it could for new condo projects.

    “Legislation could do something about the lack of funding and inspections,” he added.

    Trackback from your site.

    Leave a Reply