Condominiums in Central Florida are cutting back on things like tennis-court lights and are seeking help from the courts because so many condo owners are abandoning their fast-depreciating units and refusing to pay required maintenance fees.
“It’s a major crisis right now,” said Bill Raphan, a supervisor with the state Division of Condominiums.
Desperate condo associations are starting to seek court-appointed receivers – a trend that started in South Florida but has spread to this part of the state. It’s a sign of how dire the situation is, said Donna Berger, executive director of the Community Advocacy Network, a nonprofit group representing more than 1,500 condo and homeowner associations. “The current economic downturn and foreclosure crisis have placed many associations on the brink of disaster,” she said.
Raphan said so many condos have been abandoned that a complex with 100 units may have just five people left who can afford to stay there. “We get people who are calling and saying, ‘Why should I be paying my maintenance fees when there are so many foreclosures? I’m not going to pay. What can they do to me?’“
Delinquent owners in the Villas at Lakeside, an Oviedo condominium, may soon learn what can be done to them when they stiff their condo board.
Last week, state Circuit Judge Alan A. Dickey appointed Seth R. Heller and Co. to collect fees at the Villas. More than 60 percent of the 294 unit owners are delinquent, with individual tabs of as much as $11,000 for some owners of multiple units. Total unpaid fees: $720,000.
If those condo owners or their tenants don’t pay up soon, they will be held in contempt of court and at some point could face arrest.
“Without this order, the association was really facing financial collapse,” said Fort Lauderdale lawyer Stuart Zoberg, who represented the Villas board. “And all along you have these landlords laughing, because they are collecting rents, and they still siphon off as much money as they can from their renters without paying association fees.”
A big challenge facing the associations: Florida law requires delinquent condo owners to pay only six months’ worth of back fees, Raphan said.
“They can be two years behind, and they only have to pay six months of maintenance fees, or 1 percent of the mortgage value, and that doesn’t come anywhere near what they owe,” Raphan said.
Proposed legislation would have made owners responsible for 12 months’ worth of fees, but the measure failed earlier this year in the state legislature.
At the heart of the controversy over condo-association fees are plummeting condo prices. The hardest-hit complexes are those built or converted from apartments during the real-estate boom earlier this decade.
The median price of a condo unit in the Orlando area has dropped nearly 70 percent in the past two years, from $156,500 in August 2007 to $49,800, according to the Orlando Regional Realtor Association. Single-family homes, by comparison, posted about a 40 percent drop in median price in the same period.
With many condo owners unwilling to pay the loans on their fast-depreciating units, they are defaulting on the mortgages and not paying the association fees. And those fees often remain unpaid, because banks have been slow to repossess such units, which have become real estate’s most unloved type of property.
Prices have fallen so far that a one-bedroom condo in Regency Gardens, a complex in Orlando’s Conway section, was listed recently for just $11,000. The listing agent said the unit had been on the market about six months, having started at $40,000. She described it as “beautiful” inside. But though a mortgage on the unit would run only $50 a month with a conventional loan, the association fee would set you back $272 a month.
According to a Regency property manager, fees range from $200 to $390 a month, and only about half of owners are paying them.
When the Villas at Lakeside converted from apartments to condos about three years ago, Carl Cohen paid $140,000 for a unit now worth about half that. Stung by the sharp drop in property values, many owners stopped paying their association fee, at which point the association opted to cut expenses rather than increase the fee for the few owners still paying, said Cohen, now the group’s president. The Villas turned off the community fountain and tennis-court lights. And damaged pool cabanas and furniture can’t be replaced, said Douglas L. Rankin, the board’s vice president.
But the future looks even bleaker than the present, Cohen said. “We wanted to keep those who were paying, ... but this year we may not be able to hold back.”
Copyright © 2009 The Orlando Sentinel, Fla.,
Friday, August 28, 2009
Property Tax Alert
Florida property tax owners recently received or will soon receive their notice of assessed value for property tax purposes.
Property values are depressed in the tri-county area and the property appraiser could be overvaluing your home, rental property or business real estate. If you believe your property is or may be overvalued, now is the time to take action and challenge the county's valuation.
You can contact the property appraisers office within the time limits described below, present information and discuss the assessment. The problem is, there is a limited time to do this and surely the appraisers office will be backed-up. It makes more sense to file an appeal with the Value Adjustment Board and present your case at a scheduled date in the coming months. The cost of filing a petition is nominal (only $15) and in the meantime, you can gather the information you wish to present. A petition can be obtained on the County Appraisers website. To learn more about this process, you can review a recent Miami Herald article at: http://www.miamiherald.com/business/real-estate/story/1188238.html
Each county has a separate deadline for the filing of a petition. Miami-Dade and Broward require petitions to be filed by September 18th. Property owners in Palm Beach County have only until September 14th.
If you choose to appeal your assessment, you may wish to contact a real estate attorney or a property tax consultant.
Miami Herald:
Property values, appeals explained
Similar stories:
•
How to appeal your tax bill
How to appeal your tax bill
W hen you get your property tax notice this month, you may think the county property appraiser overvalued your home. And if you can provide compelling evidence the appraiser was wrong, you could get a reduction in market value and therefore a reduction in taxes.
The key to a successful challenge is providing proof and carefully following the complex rules.
Under Florida law, property is assessed at market value -- what a willing buyer would pay a willing seller. The property appraiser's office determines those values based on the sales of comparable properties nearby.
•
Miami-Dade tax notices likely to spark appeals by homeowners
Miami-Dade tax notices likely to spark appeals by homeowners
If you think Miami-Dade County is overvaluing your home -- and overtaxing your property as a result -- get in line.
But be warned -- the line is long, and it's about to get a whole lot longer.
Tax notices should begin hitting mailboxes later this month, and some Miami-Dade homeowners may be disappointed that their properties aren't appraised for tax purposes in lockstep with the low, low, low values ballyhooed in news reports about the depressed real estate market.
•
Property taxes
Property taxes
Q: When we bought our house last year, we were told that property tax wouldn't increase more than three percent each year with the homestead exemption. Last year, we paid close to $3,000, but, this year, we're facing $7,900!
A: Property taxes on a homesteaded property can't increase more than three percent a year. However, the $3,000 you paid was actually the previous owner's bill.
Upon sale, a property's value is reassessed and, as the new owner on the title -- and the new bearer of the homestead exemption on that house -- your bill is based on the home's current assessed value.
•
Broward tax base off 10.6%
Broward tax base off 10.6%
Broward County's tax base fell 10.6 percent in the past year.
It's the second year in a row that property appraisals declined, and next year could be worse.
The downward trend affects everyone. It means less money for labor contracts, schools, police, fire protection, parks, libraries and social services unless planners working on 2009-10 budgets raise taxes.
•
Cities should brace for property tax hikes
Cities should brace for property tax hikes
Nearly all South Miami-Dade cities are considering raising their property tax rate for the new budget year that starts Oct. 1.
Blame it on plunging real estate values.
The Preliminary Tax Roll released by the Miami-Dade County Property Appraiser's Office shows a substantial decline -- 13 percent -- in the countywide taxable value of existing properties in Miami-Dade County.
Q: When will I find out the assessed value of my property?
A: Broward residents can look online at http://www.bcpa.net/, and their TRIM (Truth in Millage) notices, which list estimated property values and tax bills, were mailed last week. Miami-Dade TRIM notices will be mailed the week of Aug. 24, and property values will go online later at http://www.miamidade.
gov/pa/.
Q: What is the assessed value and what is the market value?
A: The market value is the property appraiser's estimate of what your home would sell for. The assessed value is the value upon which your tax bill is based. It takes into account the Save Our Homes law, which prohibits the assessed value from rising more than 3 percent a year on homestead properties.
Q: What if I believe the property appraiser has set my value too high?
A: In Broward, you can call 954-357-6830 or visit the main office at 115 S. Andrews Ave., Room 111, Fort Lauderdale, from 7 a.m. to 6 p.m. weekdays. The office will be open until 7 p.m. Sept. 8-18. Both the main office and West Broward office, 1 N. University Drive, Room 111-A, Plantation, will be open 8:30 a.m. to 5 p.m. three Saturdays: Aug. 22, Aug. 29 and Sept. 12.
The number in Miami-Dade is 786-331-5321 but the property appraiser encourages those who have questions about their valuation to visit in person at the Stephen P. Clark Center, 111 NW First St., Suite 710, Miami, or South Dade Government Center, 10710 SW 211th St., Cutler Bay, from 8 a.m. to 5 p.m.
Q: What if the property appraiser refuses to adjust my valuation?
A: You can appeal to the Value Adjustment Board. Forms are available at the property appraisers' office in both counties and online at http://bcvab.broward.org/
org/axiaweb2009/for Broward.
Miami-Dade does not have the current form online, but you can see last year's form at http://www.miami-dadeclerk.
com/dadecoc/Web-Forms/
VAB/481-PETITION-2008.pdf.
Q: When must the appeal be filed?
A: You must file by Sept. 18.
Q: How much does it cost?
A: $15 per folio or $5 per condo unit for a group filing.
Q: When will I receive a hearing?
A: Hearings will begin in November and continue into the next year.
Q: What should I bring to the hearing?
A: Bring written evidence of comparable sales in your neighborhood in 2008, photos of your property and comparable property and any other written evidence you believe supports your case, including evidence that indicates some sales prices in your neighborhood may have been inflated by fraud.
Q: What if there were no comparable sales in my neighborhood?
A: Branch out to adjoining neighborhoods. Be sure to look at sales prices per square foot and lot sizes. If you live in a neighborhood where lot sizes are similar but home sizes vary, you can look at land values per square foot as comparable.
Q: Should our condo association appeal as a group or should we appeal individually?
A: It depends on the situation. You might want to meet with a tax agent for an opinion. In a building where many people aren't paying maintenance and aren't going to pay their taxes anyway, you might want to appeal as an individual. In a newer building where most owners believe their units were overvalued, it probably is better to appeal as a group.
Q: Who should use a tax agent for an appeal?
A: Anyone who doesn't know how to research comparable property sales should consider using an agent.
Q: How much does an agent charge?
A: Usually 25 to 50 percent of the amount of taxes saved.
Q: I don't speak English well. Is a translator provided in the hearings?
A: The hearings are conducted in English. If you need a translator, you should bring one with you.
Q: I forgot to file for homestead exemption. Is it too late?
A: If you were living in your home on Jan. 1, 2009, you can file a late homestead exemption until Sept. 18.
Q: How is my tax bill calculated?
A: Your tax rate is calculated by multiplying your assessed value (after exemptions) by the tax rate charged by your city, county, school board and other taxing entities.
Q: What if I believe my property valuation is accurate but I think taxes are too high?
A: Attend the budget hearings advertised in the TRIM notice and let your elected representatives know where you think they should cut their budgets in order to lower the millage rate.
Property values are depressed in the tri-county area and the property appraiser could be overvaluing your home, rental property or business real estate. If you believe your property is or may be overvalued, now is the time to take action and challenge the county's valuation.
You can contact the property appraisers office within the time limits described below, present information and discuss the assessment. The problem is, there is a limited time to do this and surely the appraisers office will be backed-up. It makes more sense to file an appeal with the Value Adjustment Board and present your case at a scheduled date in the coming months. The cost of filing a petition is nominal (only $15) and in the meantime, you can gather the information you wish to present. A petition can be obtained on the County Appraisers website. To learn more about this process, you can review a recent Miami Herald article at: http://www.miamiherald.com/business/real-estate/story/1188238.html
Each county has a separate deadline for the filing of a petition. Miami-Dade and Broward require petitions to be filed by September 18th. Property owners in Palm Beach County have only until September 14th.
If you choose to appeal your assessment, you may wish to contact a real estate attorney or a property tax consultant.
Miami Herald:
Property values, appeals explained
Similar stories:
•
How to appeal your tax bill
How to appeal your tax bill
W hen you get your property tax notice this month, you may think the county property appraiser overvalued your home. And if you can provide compelling evidence the appraiser was wrong, you could get a reduction in market value and therefore a reduction in taxes.
The key to a successful challenge is providing proof and carefully following the complex rules.
Under Florida law, property is assessed at market value -- what a willing buyer would pay a willing seller. The property appraiser's office determines those values based on the sales of comparable properties nearby.
•
Miami-Dade tax notices likely to spark appeals by homeowners
Miami-Dade tax notices likely to spark appeals by homeowners
If you think Miami-Dade County is overvaluing your home -- and overtaxing your property as a result -- get in line.
But be warned -- the line is long, and it's about to get a whole lot longer.
Tax notices should begin hitting mailboxes later this month, and some Miami-Dade homeowners may be disappointed that their properties aren't appraised for tax purposes in lockstep with the low, low, low values ballyhooed in news reports about the depressed real estate market.
•
Property taxes
Property taxes
Q: When we bought our house last year, we were told that property tax wouldn't increase more than three percent each year with the homestead exemption. Last year, we paid close to $3,000, but, this year, we're facing $7,900!
A: Property taxes on a homesteaded property can't increase more than three percent a year. However, the $3,000 you paid was actually the previous owner's bill.
Upon sale, a property's value is reassessed and, as the new owner on the title -- and the new bearer of the homestead exemption on that house -- your bill is based on the home's current assessed value.
•
Broward tax base off 10.6%
Broward tax base off 10.6%
Broward County's tax base fell 10.6 percent in the past year.
It's the second year in a row that property appraisals declined, and next year could be worse.
The downward trend affects everyone. It means less money for labor contracts, schools, police, fire protection, parks, libraries and social services unless planners working on 2009-10 budgets raise taxes.
•
Cities should brace for property tax hikes
Cities should brace for property tax hikes
Nearly all South Miami-Dade cities are considering raising their property tax rate for the new budget year that starts Oct. 1.
Blame it on plunging real estate values.
The Preliminary Tax Roll released by the Miami-Dade County Property Appraiser's Office shows a substantial decline -- 13 percent -- in the countywide taxable value of existing properties in Miami-Dade County.
Q: When will I find out the assessed value of my property?
A: Broward residents can look online at http://www.bcpa.net/, and their TRIM (Truth in Millage) notices, which list estimated property values and tax bills, were mailed last week. Miami-Dade TRIM notices will be mailed the week of Aug. 24, and property values will go online later at http://www.miamidade.
gov/pa/.
Q: What is the assessed value and what is the market value?
A: The market value is the property appraiser's estimate of what your home would sell for. The assessed value is the value upon which your tax bill is based. It takes into account the Save Our Homes law, which prohibits the assessed value from rising more than 3 percent a year on homestead properties.
Q: What if I believe the property appraiser has set my value too high?
A: In Broward, you can call 954-357-6830 or visit the main office at 115 S. Andrews Ave., Room 111, Fort Lauderdale, from 7 a.m. to 6 p.m. weekdays. The office will be open until 7 p.m. Sept. 8-18. Both the main office and West Broward office, 1 N. University Drive, Room 111-A, Plantation, will be open 8:30 a.m. to 5 p.m. three Saturdays: Aug. 22, Aug. 29 and Sept. 12.
The number in Miami-Dade is 786-331-5321 but the property appraiser encourages those who have questions about their valuation to visit in person at the Stephen P. Clark Center, 111 NW First St., Suite 710, Miami, or South Dade Government Center, 10710 SW 211th St., Cutler Bay, from 8 a.m. to 5 p.m.
Q: What if the property appraiser refuses to adjust my valuation?
A: You can appeal to the Value Adjustment Board. Forms are available at the property appraisers' office in both counties and online at http://bcvab.broward.org/
org/axiaweb2009/for Broward.
Miami-Dade does not have the current form online, but you can see last year's form at http://www.miami-dadeclerk.
com/dadecoc/Web-Forms/
VAB/481-PETITION-2008.pdf.
Q: When must the appeal be filed?
A: You must file by Sept. 18.
Q: How much does it cost?
A: $15 per folio or $5 per condo unit for a group filing.
Q: When will I receive a hearing?
A: Hearings will begin in November and continue into the next year.
Q: What should I bring to the hearing?
A: Bring written evidence of comparable sales in your neighborhood in 2008, photos of your property and comparable property and any other written evidence you believe supports your case, including evidence that indicates some sales prices in your neighborhood may have been inflated by fraud.
Q: What if there were no comparable sales in my neighborhood?
A: Branch out to adjoining neighborhoods. Be sure to look at sales prices per square foot and lot sizes. If you live in a neighborhood where lot sizes are similar but home sizes vary, you can look at land values per square foot as comparable.
Q: Should our condo association appeal as a group or should we appeal individually?
A: It depends on the situation. You might want to meet with a tax agent for an opinion. In a building where many people aren't paying maintenance and aren't going to pay their taxes anyway, you might want to appeal as an individual. In a newer building where most owners believe their units were overvalued, it probably is better to appeal as a group.
Q: Who should use a tax agent for an appeal?
A: Anyone who doesn't know how to research comparable property sales should consider using an agent.
Q: How much does an agent charge?
A: Usually 25 to 50 percent of the amount of taxes saved.
Q: I don't speak English well. Is a translator provided in the hearings?
A: The hearings are conducted in English. If you need a translator, you should bring one with you.
Q: I forgot to file for homestead exemption. Is it too late?
A: If you were living in your home on Jan. 1, 2009, you can file a late homestead exemption until Sept. 18.
Q: How is my tax bill calculated?
A: Your tax rate is calculated by multiplying your assessed value (after exemptions) by the tax rate charged by your city, county, school board and other taxing entities.
Q: What if I believe my property valuation is accurate but I think taxes are too high?
A: Attend the budget hearings advertised in the TRIM notice and let your elected representatives know where you think they should cut their budgets in order to lower the millage rate.
Thursday, August 27, 2009
Fla. insurers want a re-do of ‘State Farm’ bill
Property insurers are eagerly eyeing the possibility that a new Seminole gaming compact could require a special session because it would give them the opportunity to again pass legislation to allow for property insurance rate increases without state regulatory approval.
Insurance industry lobbyist Mark Delegal, who represents State Farm and other insurance companies, said Wednesday that bringing back the insurance deregulation bill – which passed last session but was vetoed by Gov. Charlie Crist – is being explored.
“If there’s a special session, we would be pursuing legislation that is the same as, or similar to, HB 1171,” Delegal said.
Last session’s HB 1171 would have allowed certain large, well-capitalized insurance companies to raise rates outside the regulatory framework in an effort to appease companies that say they can’t make money in Florida. That includes State Farm, which says it’s trying to pull out of the property insurance market here because regulators won’t allow it to raise rates to a level necessary to remain viable.
The legislation, sponsored last session by Rep. Bill Proctor, R-St. Augustine, passed the House overwhelmingly, 105-13, and passed the Senate 27-9. Those numbers give backers of the legislation hope that a veto override would be possible if lawmakers return.
Proctor said Wednesday that he has already filed the same legislation for next session, and he acknowledged interest in bringing it back earlier should there be a special session. However, a revised bill – one that might allow more companies to raise rates without regulatory approval than would have been eligible under last year’s legislation – is more likely than overriding Crist’s veto to pass the same bill.
“Any override, of course, is a leadership call and that’s above my pay grade,” Proctor told the News Service.
There’s also no guarantee that legislation backers would be able to get the issue added to a special session. “That would be an addition to the (Indian gaming) agenda,” Proctor noted “I don’t think the governor would be putting that in the call.” Crist has long been a thorn in the side of the property insurance industry, running for governor in large part on a platform of lowering insurance rates.
Insurance Commissioner Kevin McCarty is another industry obstacle as it tries to raise rates to a level it considers actuarially sound. McCarty and legislators have sparred over the amount of private insurance actually available to Florida customers. Many Republican legislators say they fear over-regulation of rates will cause more companies to follow State Farm’s lead. Allstate has already done so, pulling back from writing policies here.
That leaves every other insurance customer in the state, and possibly taxpayers, on the hook for claims in the event of a big hurricane.
McCarty’s spokesman, Tom Zutell, said the commissioner doesn’t usually comment on pending legislation, much less legislation that may or may not appear in a special session. But he said McCarty is “more than happy to participate” in discussions with lawmakers about the pros and cons of deregulation legislation, which he opposed last year.
Even if there’s not a special session, Proctor said he’ll push the idea again this year, and hopes to get Senate sponsor Mike Bennett, R-Bradenton, to go along with expanding the proposal.
“I’m going to ... frankly make it open to more companies if my companion will agree to that,” Proctor said. How, exactly, that would happen – whether it would be to remove any capitalization limit or simply lower the threshold – is still open to debate.
While proposal backers say they would have the votes for a veto override based on last year’s vote, both opponents and supporters acknowledge that some lawmakers have changed their mind since then.
State officials and representatives from the Seminole Tribe have been meeting in Tallahassee the past few days to discuss a deal that would give the state a cut of the tribe’s gaming proceeds. The Legislature earlier this year approved a deal that would permit banked card games such as blackjack and baccarat at Seminole casinos in Broward and Hillsborough counties, but not at the tribe’s five other facilities. It would give the tribe exclusive rights to class three slot machines outside of Miami-Dade and Broward counties.
The legislation directed Gov. Charlie Crist to negotiate with the tribe under these terms. But the Legislature would have to approve any final deal between the state and the tribe – leading to speculation that a deal thought by some to be imminent could mean there would be a need for a special session.
Source: The News Service of Florida,
Insurance industry lobbyist Mark Delegal, who represents State Farm and other insurance companies, said Wednesday that bringing back the insurance deregulation bill – which passed last session but was vetoed by Gov. Charlie Crist – is being explored.
“If there’s a special session, we would be pursuing legislation that is the same as, or similar to, HB 1171,” Delegal said.
Last session’s HB 1171 would have allowed certain large, well-capitalized insurance companies to raise rates outside the regulatory framework in an effort to appease companies that say they can’t make money in Florida. That includes State Farm, which says it’s trying to pull out of the property insurance market here because regulators won’t allow it to raise rates to a level necessary to remain viable.
The legislation, sponsored last session by Rep. Bill Proctor, R-St. Augustine, passed the House overwhelmingly, 105-13, and passed the Senate 27-9. Those numbers give backers of the legislation hope that a veto override would be possible if lawmakers return.
Proctor said Wednesday that he has already filed the same legislation for next session, and he acknowledged interest in bringing it back earlier should there be a special session. However, a revised bill – one that might allow more companies to raise rates without regulatory approval than would have been eligible under last year’s legislation – is more likely than overriding Crist’s veto to pass the same bill.
“Any override, of course, is a leadership call and that’s above my pay grade,” Proctor told the News Service.
There’s also no guarantee that legislation backers would be able to get the issue added to a special session. “That would be an addition to the (Indian gaming) agenda,” Proctor noted “I don’t think the governor would be putting that in the call.” Crist has long been a thorn in the side of the property insurance industry, running for governor in large part on a platform of lowering insurance rates.
Insurance Commissioner Kevin McCarty is another industry obstacle as it tries to raise rates to a level it considers actuarially sound. McCarty and legislators have sparred over the amount of private insurance actually available to Florida customers. Many Republican legislators say they fear over-regulation of rates will cause more companies to follow State Farm’s lead. Allstate has already done so, pulling back from writing policies here.
That leaves every other insurance customer in the state, and possibly taxpayers, on the hook for claims in the event of a big hurricane.
McCarty’s spokesman, Tom Zutell, said the commissioner doesn’t usually comment on pending legislation, much less legislation that may or may not appear in a special session. But he said McCarty is “more than happy to participate” in discussions with lawmakers about the pros and cons of deregulation legislation, which he opposed last year.
Even if there’s not a special session, Proctor said he’ll push the idea again this year, and hopes to get Senate sponsor Mike Bennett, R-Bradenton, to go along with expanding the proposal.
“I’m going to ... frankly make it open to more companies if my companion will agree to that,” Proctor said. How, exactly, that would happen – whether it would be to remove any capitalization limit or simply lower the threshold – is still open to debate.
While proposal backers say they would have the votes for a veto override based on last year’s vote, both opponents and supporters acknowledge that some lawmakers have changed their mind since then.
State officials and representatives from the Seminole Tribe have been meeting in Tallahassee the past few days to discuss a deal that would give the state a cut of the tribe’s gaming proceeds. The Legislature earlier this year approved a deal that would permit banked card games such as blackjack and baccarat at Seminole casinos in Broward and Hillsborough counties, but not at the tribe’s five other facilities. It would give the tribe exclusive rights to class three slot machines outside of Miami-Dade and Broward counties.
The legislation directed Gov. Charlie Crist to negotiate with the tribe under these terms. But the Legislature would have to approve any final deal between the state and the tribe – leading to speculation that a deal thought by some to be imminent could mean there would be a need for a special session.
Source: The News Service of Florida,
Wednesday, August 26, 2009
Fla. to study property insurance options
Insurance Commissioner Kevin McCarty will likely go before a House insurance panel in the coming months to discuss the property insurance market as questions continue over just how much solid coverage is available in the face of a pull out by State Farm.
Rep. Pat Patterson, R-DeLand, chairman of the House Insurance, Business & Financial Affairs Policy Committee, said Monday that if he remains chairman of the panel, he believes it likely that McCarty will be asked about the number of companies still writing property coverage in Florida and how much capital they have.
“Normally, as a matter of courtesy, the commissioner and other people that come under our policy committee usually request to come before us anyway, so I assume he would probably be making a request,” Patterson said.
His remarks followed a letter Rep. Scott Plakon sent last week to Patterson urging him to “extend an invitation” to McCarty in light of a seeming inability for anyone to agree on the private property insurance market’s exact status.
“In light of an unprecedented amount of conflicting information to which we have been exposed of late, I am concerned that the answers are becoming more muddled as time goes on,” wrote Plakon, R-Longwood.
Last year, lawmakers considered a measure that would have allowed some insurers to go unregulated. At the time, McCarty told lawmakers that 40 companies with $4 billion in capital were writing hurricane policies. The issue was relevant as the state tried to decide whether it should make concessions to large insurers like State Farm to keep them here, or whether residents had enough private insurance alternatives from companies that were considered safe bets in their ability to pay all claims resulting from a big storm.
Eventually, the Legislature passed the bill (HB 1171), but Gov. Charlie Crist vetoed it. In doing so, Crist used as justification, in part, the notion that the property insurance market was well-capitalized.
But since then, McCarty’s figures on the amount of available private coverage have come into question, most vocally from Rep. Bill Proctor, R-St. Augustine, who sponsored the legislation Crist vetoed, and recently from state Chief Financial Officer Alex Sink.
In response to a request from Sink, McCarty recently reported to the Cabinet that about $600 million in new capital has been added to the property insurance market since 2006.
If there isn’t enough capital to cover claims, “we are exposed,” Plakon said in an interview with The News Service on Monday. “We make decisions on legislation, and it seems like the information we’ve gotten has seemed to be a moving target. I just thought it appropriate that Commissioner McCarty help us clarify, so we have a good understanding of what the capital in-flows and out-flows look like.”
McCarty spokesman Tom Zutell said McCarty “is always willing to continue meeting with lawmakers to discuss the state of Florida’s property insurance market, and he appreciates the opportunity to clarify the misinformation that is being perpetuated in the press.”
Zutell said McCarty has also already had “several productive meetings on this subject” with House and Senate leaders.
In a statement released Monday, Zutell said that a total of $607 million in investment capital from insurers has resulted in nearly 616,000 new personal residential policies by the end of last year. McCarty has said that a higher number, approaching $5 billion, includes other types of insurers, such as unregulated surplus lines insurers.
Source: News Service of Florida
Rep. Pat Patterson, R-DeLand, chairman of the House Insurance, Business & Financial Affairs Policy Committee, said Monday that if he remains chairman of the panel, he believes it likely that McCarty will be asked about the number of companies still writing property coverage in Florida and how much capital they have.
“Normally, as a matter of courtesy, the commissioner and other people that come under our policy committee usually request to come before us anyway, so I assume he would probably be making a request,” Patterson said.
His remarks followed a letter Rep. Scott Plakon sent last week to Patterson urging him to “extend an invitation” to McCarty in light of a seeming inability for anyone to agree on the private property insurance market’s exact status.
“In light of an unprecedented amount of conflicting information to which we have been exposed of late, I am concerned that the answers are becoming more muddled as time goes on,” wrote Plakon, R-Longwood.
Last year, lawmakers considered a measure that would have allowed some insurers to go unregulated. At the time, McCarty told lawmakers that 40 companies with $4 billion in capital were writing hurricane policies. The issue was relevant as the state tried to decide whether it should make concessions to large insurers like State Farm to keep them here, or whether residents had enough private insurance alternatives from companies that were considered safe bets in their ability to pay all claims resulting from a big storm.
Eventually, the Legislature passed the bill (HB 1171), but Gov. Charlie Crist vetoed it. In doing so, Crist used as justification, in part, the notion that the property insurance market was well-capitalized.
But since then, McCarty’s figures on the amount of available private coverage have come into question, most vocally from Rep. Bill Proctor, R-St. Augustine, who sponsored the legislation Crist vetoed, and recently from state Chief Financial Officer Alex Sink.
In response to a request from Sink, McCarty recently reported to the Cabinet that about $600 million in new capital has been added to the property insurance market since 2006.
If there isn’t enough capital to cover claims, “we are exposed,” Plakon said in an interview with The News Service on Monday. “We make decisions on legislation, and it seems like the information we’ve gotten has seemed to be a moving target. I just thought it appropriate that Commissioner McCarty help us clarify, so we have a good understanding of what the capital in-flows and out-flows look like.”
McCarty spokesman Tom Zutell said McCarty “is always willing to continue meeting with lawmakers to discuss the state of Florida’s property insurance market, and he appreciates the opportunity to clarify the misinformation that is being perpetuated in the press.”
Zutell said McCarty has also already had “several productive meetings on this subject” with House and Senate leaders.
In a statement released Monday, Zutell said that a total of $607 million in investment capital from insurers has resulted in nearly 616,000 new personal residential policies by the end of last year. McCarty has said that a higher number, approaching $5 billion, includes other types of insurers, such as unregulated surplus lines insurers.
Source: News Service of Florida
Monday, August 24, 2009
Report: Chinese drywall has no radioactive threat
State and federal officials say homeowners shouldn’t worry about radioactivity from Chinese drywall.
The U.S. Consumer Product Safety Commission asked the U.S. Environmental Protection Agency and the Florida Department of Health to test drywall samples for phosphogypsum, or calcium sulfate.
According to a report released Friday, traces of the material were found but the radioactive levels were no higher than what ordinarily would be found in the natural environment.
Officials are continuing to investigate more than 1,100 drywall-related complaints. Chinese drywall has been blamed for emitting putrid odors and corroding metal air conditioning parts, and homeowners nationwide have complained about nosebleeds, headaches, sore throats and other ailments.
Copyright © 2009 The Associated Press.
The U.S. Consumer Product Safety Commission asked the U.S. Environmental Protection Agency and the Florida Department of Health to test drywall samples for phosphogypsum, or calcium sulfate.
According to a report released Friday, traces of the material were found but the radioactive levels were no higher than what ordinarily would be found in the natural environment.
Officials are continuing to investigate more than 1,100 drywall-related complaints. Chinese drywall has been blamed for emitting putrid odors and corroding metal air conditioning parts, and homeowners nationwide have complained about nosebleeds, headaches, sore throats and other ailments.
Copyright © 2009 The Associated Press.
Thursday, August 20, 2009
CPSC opens drywall information center
A new website launched by the Consumer Product Safety Commission (CPSC) aims to update consumers, builders, drywall manufacturers, and others on its probe into imported Chinese drywall – which has generated complaints of foul odors, metal corrosion, and health problems from those occupying properties containing the defective wallboard.
The CPSC Drywall Information Center will provide details of the investigation – which involves air samples, import tracking and an analysis of the health effects of the Chinese drywall, among other things – and visitors can sign up for e-mail alerts.
The Environmental Protection Agency has determined that Chinese drywall contains 10 times more strontium than U.S. drywall, and it detected the presence of sulfur and two organic compounds in acrylic paint that are not used in U.S. drywall. Approximately 36,000 homes in Florida and many others in Alabama, California, Mississippi, Virginia, and areas of Louisiana hit hard by Hurricane Katrina have been affected.
The CPSC drywall website is located at: http://www.cpsc.gov/info/drywall
Source: Realty Times (08/20/09) Perkins, Broderick
© Copyright 2009 INFORMATION, INC.
The CPSC Drywall Information Center will provide details of the investigation – which involves air samples, import tracking and an analysis of the health effects of the Chinese drywall, among other things – and visitors can sign up for e-mail alerts.
The Environmental Protection Agency has determined that Chinese drywall contains 10 times more strontium than U.S. drywall, and it detected the presence of sulfur and two organic compounds in acrylic paint that are not used in U.S. drywall. Approximately 36,000 homes in Florida and many others in Alabama, California, Mississippi, Virginia, and areas of Louisiana hit hard by Hurricane Katrina have been affected.
The CPSC drywall website is located at: http://www.cpsc.gov/info/drywall
Source: Realty Times (08/20/09) Perkins, Broderick
© Copyright 2009 INFORMATION, INC.
Tuesday, August 11, 2009
Drywall homes: bargain or bind
Florida homes tainted by defective Chinese drywall are popping up on Realtor.com at bargain-basement prices. Although it is not required by law, many brokers have readily adopted a new drywall disclosure form developed by the Florida Association of Realtors® to use in sales transactions.
There currently are nine drywall properties listed for sale on the site – all of them fairly new and for under $50,000 – but there also are questions about whether the low prices are worth the hassle the real estate could bring in the future.
It reportedly costs about $100,000 to clean up a property contaminated by bad drywall, which leaves an offensive smell, corrodes metal components in the home, and causes respiratory problems and other health troubles for occupants. Remediation typically involves gutting the home and replacing the affected materials, but it is not yet known if that is the final solution.
“What if they say every porous material in the home, including concrete slab, absorbed enough stuff to consider it a health risk,” poses Jeff Tumbarello, president of the Southwest Florida Real Estate Investors Association. “Then what? Then you’re done. (Investing in a Chinese drywall home is) just a big wild card. Somebody is going to look brilliant, somebody is going to look stupid. We just don’t know who they are yet.”
Bonita Springs-Estero Association of Realtors President Joe Pavich also is taking the “caveat emptor” approach. He estimates that a buyer could purchase a home for $20,000 and completely rehabilitate it; but he says house-hunters also now could get a similar property – minus the defective drywall – for as little as $70,000.
Source: Fort Myers News-Press (08/10/09) Wozniak, Mary
© Copyright 2009 INFORMATION, INC
There currently are nine drywall properties listed for sale on the site – all of them fairly new and for under $50,000 – but there also are questions about whether the low prices are worth the hassle the real estate could bring in the future.
It reportedly costs about $100,000 to clean up a property contaminated by bad drywall, which leaves an offensive smell, corrodes metal components in the home, and causes respiratory problems and other health troubles for occupants. Remediation typically involves gutting the home and replacing the affected materials, but it is not yet known if that is the final solution.
“What if they say every porous material in the home, including concrete slab, absorbed enough stuff to consider it a health risk,” poses Jeff Tumbarello, president of the Southwest Florida Real Estate Investors Association. “Then what? Then you’re done. (Investing in a Chinese drywall home is) just a big wild card. Somebody is going to look brilliant, somebody is going to look stupid. We just don’t know who they are yet.”
Bonita Springs-Estero Association of Realtors President Joe Pavich also is taking the “caveat emptor” approach. He estimates that a buyer could purchase a home for $20,000 and completely rehabilitate it; but he says house-hunters also now could get a similar property – minus the defective drywall – for as little as $70,000.
Source: Fort Myers News-Press (08/10/09) Wozniak, Mary
© Copyright 2009 INFORMATION, INC
Friday, August 7, 2009
OIR approves portions of State Farm proposal, rejects others
State regulators on Thursday approved a slate of requests from State Farm Florida Insurance Co. that will raise premiums for homeowners by an average of 28.4 percent.
The decision by the Office of Insurance Regulation (OIR), agency officials say, would result in additional premiums of $278 million for the company after all policies come up for renewals beginning Dec. 1.
But the rate increases will target only those customers who now benefit from a handful of voluntary discounts offered by State Farm, including premium breaks for policyholders who also insure their cars with the company, have a home security system or have not filed a claim in several years.
State insurance regulators, however, rejected a company request to reduce premium discounts it is required to offer customers who hurricane-proof their homes, saying the company must provide additional data before regulators will be willing to modify discounts already in place.
“They need to do some more work on that piece,” said Belinda Miller, OIR deputy commissioner.
State lawmakers recently enacted legislation requiring insurers to offer premium discounts for homes that are better able to withstand hurricane force winds. To change the discount, companies must provide a detailed study showing that different discount rates are more appropriate.
“State Farm ran a model but did not have what we considered to be a detailed alternative study,” Miller said.
State Farm and Florida regulators are in the process of negotiating a two-year exit plan. Unable to obtain the premium increases it says it needs, the company in January said it would leave the state’s property insurance market over a two-year period once an acceptable withdrawal plan was approved.
State Farm has long offered discounts as a marketing tool. The discounts are voluntary, but must still be approved by OIR. The agency is also required to sign off if those discounts are discontinued, even though regulators have little or no authority to block the decision.
A company spokesman said eliminating the discounts is needed as the company responds to market conditions and its inability to convince regulators that higher premiums are needed.
“Right now what we’re focusing on is developing a plan to provide a soft landing for our customers and to allow them to continue to work through their agents,” said Justin Glover, a State Farm spokesman.
Formal hearings are scheduled to begin in October over State Farm’s exit plan, but Glover said the company continues to talk with agency officials to reach agreement before then.
Source: News Service of Florida,
The decision by the Office of Insurance Regulation (OIR), agency officials say, would result in additional premiums of $278 million for the company after all policies come up for renewals beginning Dec. 1.
But the rate increases will target only those customers who now benefit from a handful of voluntary discounts offered by State Farm, including premium breaks for policyholders who also insure their cars with the company, have a home security system or have not filed a claim in several years.
State insurance regulators, however, rejected a company request to reduce premium discounts it is required to offer customers who hurricane-proof their homes, saying the company must provide additional data before regulators will be willing to modify discounts already in place.
“They need to do some more work on that piece,” said Belinda Miller, OIR deputy commissioner.
State lawmakers recently enacted legislation requiring insurers to offer premium discounts for homes that are better able to withstand hurricane force winds. To change the discount, companies must provide a detailed study showing that different discount rates are more appropriate.
“State Farm ran a model but did not have what we considered to be a detailed alternative study,” Miller said.
State Farm and Florida regulators are in the process of negotiating a two-year exit plan. Unable to obtain the premium increases it says it needs, the company in January said it would leave the state’s property insurance market over a two-year period once an acceptable withdrawal plan was approved.
State Farm has long offered discounts as a marketing tool. The discounts are voluntary, but must still be approved by OIR. The agency is also required to sign off if those discounts are discontinued, even though regulators have little or no authority to block the decision.
A company spokesman said eliminating the discounts is needed as the company responds to market conditions and its inability to convince regulators that higher premiums are needed.
“Right now what we’re focusing on is developing a plan to provide a soft landing for our customers and to allow them to continue to work through their agents,” said Justin Glover, a State Farm spokesman.
Formal hearings are scheduled to begin in October over State Farm’s exit plan, but Glover said the company continues to talk with agency officials to reach agreement before then.
Source: News Service of Florida,
Tuesday, August 4, 2009
Chinese drywall: One builder guts own home
Across South Florida and the country, distraught homeowners feel stuck in their stinky, corroding homes that are breaking down bit by bit from something leaching from defective Chinese drywall.
For most, moving out, paying rent somewhere else and keeping up with their mortgages is far too expensive, so they continue living in the unsavory conditions. They are in financial limbo, waiting for money from lawsuits inching their way through state and federal courts that might yield a payout a year or two – or more – from now, before contemplating repairs.
Some are hoping for home builders to come to their rescue. Others are hoping for money from insurance claims.
But waiting could just make the problem worse, said Frank Mackle, a home builder who recently discovered his own house has the problem product.
So he gutted the townhome himself a few weeks ago.
“This is coming out of my own pocket,” said Mackle, walking through the shell of the 2,300-square-foot Coral Gables home.
“I had it all tricked out,” he said, recalling the custom wall treatments, plantation shutters and crown moldings. He estimates the repairs will cost at least $80,000 – money he is borrowing to fix the property.
Watching the fumes from the drywall, Mackle is certain that the repairs would only be more expensive if he were to wait.
“If we let this thing fester, the amount of damage could be that much more,” he said. “I’m not a scientist. I’m a victim who’s trying not to go overboard.”
Mackle is hoping to save some of the pipes, some wiring, kitchen cabinets, crown moldings and baseboards. Other home builders remediating homes are recycling only the homes’ outermost shell, for fear that the chemicals from the drywall may have seeped into other items, possibly leading to more corrosion in the future.
As of Thursday, about 540 complaints about drywall had been registered with the Florida Department of Health. Tens of thousands of homes in Florida and as many as 100,000 across the country are believed to have been built with imported drywall that homeowners say has triggered everything from respiratory problems and corroded air conditioner coils and wiring to blackened jewelry and other metals.
Lingering effects
Mackle has enlisted engineers, electricians, plumbers and an air-quality testing company to monitor his renovations and ensure there are no lingering effects from the drywall.
Mackle wasn’t involved in the construction of the property, which he intended to live in only while building a permanent residence for his family. He, his wife and three daughters spent about 18 months in the townhome, never connecting the malfunctioning air conditioner, microwave and stove with bad drywall.
“We were experts,” Mackle said. “Fast forward a few months and I’m a victim.”
They had planned to rent out the property, in the Bermuda Village development on Loretto Avenue, once they left. They moved out, turned up the thermostat and returned six weeks later to an overwhelming smell of rotten eggs.
Then a neighbor mentioned similar problems with appliances. Mackle looked at the drywall and saw it was stamped with the name Knauf, as in Knauf Plasterboard Tianjin, one of the companies targeted by lawsuits for manufacturing the defective wall board. Mackle has a lawsuit against KPT too, but he isn’t counting on receiving anything.
Coral Gables attorney David Durkee, who has filed lawsuits on behalf of people who suspect imported drywall is affecting their properties, cautioned homeowners against taking actions like Mackle.
Drawbacks
He compared the situation to a car accident victim who believes the car’s design or manufacturing caused the accident.
“In this case, if the client were to perform repairs without giving the defendant an opportunity to inspect and test the car, the defendant could claim that there was destruction of the evidence and the plaintiff may lose the right to bring the action,” Durkee said. “Remember – we have to prove that the home is defective because of Chinese drywall – not that the home contains Chinese drywall.”
But Mackle said he feels he has no choice.
“This is not easy for me to do, but I don’t see that I have any options. It can’t be left alone,” he said. “Who’s going to rent the place? Who’s going to buy it from me?”
Source: AP
For most, moving out, paying rent somewhere else and keeping up with their mortgages is far too expensive, so they continue living in the unsavory conditions. They are in financial limbo, waiting for money from lawsuits inching their way through state and federal courts that might yield a payout a year or two – or more – from now, before contemplating repairs.
Some are hoping for home builders to come to their rescue. Others are hoping for money from insurance claims.
But waiting could just make the problem worse, said Frank Mackle, a home builder who recently discovered his own house has the problem product.
So he gutted the townhome himself a few weeks ago.
“This is coming out of my own pocket,” said Mackle, walking through the shell of the 2,300-square-foot Coral Gables home.
“I had it all tricked out,” he said, recalling the custom wall treatments, plantation shutters and crown moldings. He estimates the repairs will cost at least $80,000 – money he is borrowing to fix the property.
Watching the fumes from the drywall, Mackle is certain that the repairs would only be more expensive if he were to wait.
“If we let this thing fester, the amount of damage could be that much more,” he said. “I’m not a scientist. I’m a victim who’s trying not to go overboard.”
Mackle is hoping to save some of the pipes, some wiring, kitchen cabinets, crown moldings and baseboards. Other home builders remediating homes are recycling only the homes’ outermost shell, for fear that the chemicals from the drywall may have seeped into other items, possibly leading to more corrosion in the future.
As of Thursday, about 540 complaints about drywall had been registered with the Florida Department of Health. Tens of thousands of homes in Florida and as many as 100,000 across the country are believed to have been built with imported drywall that homeowners say has triggered everything from respiratory problems and corroded air conditioner coils and wiring to blackened jewelry and other metals.
Lingering effects
Mackle has enlisted engineers, electricians, plumbers and an air-quality testing company to monitor his renovations and ensure there are no lingering effects from the drywall.
Mackle wasn’t involved in the construction of the property, which he intended to live in only while building a permanent residence for his family. He, his wife and three daughters spent about 18 months in the townhome, never connecting the malfunctioning air conditioner, microwave and stove with bad drywall.
“We were experts,” Mackle said. “Fast forward a few months and I’m a victim.”
They had planned to rent out the property, in the Bermuda Village development on Loretto Avenue, once they left. They moved out, turned up the thermostat and returned six weeks later to an overwhelming smell of rotten eggs.
Then a neighbor mentioned similar problems with appliances. Mackle looked at the drywall and saw it was stamped with the name Knauf, as in Knauf Plasterboard Tianjin, one of the companies targeted by lawsuits for manufacturing the defective wall board. Mackle has a lawsuit against KPT too, but he isn’t counting on receiving anything.
Coral Gables attorney David Durkee, who has filed lawsuits on behalf of people who suspect imported drywall is affecting their properties, cautioned homeowners against taking actions like Mackle.
Drawbacks
He compared the situation to a car accident victim who believes the car’s design or manufacturing caused the accident.
“In this case, if the client were to perform repairs without giving the defendant an opportunity to inspect and test the car, the defendant could claim that there was destruction of the evidence and the plaintiff may lose the right to bring the action,” Durkee said. “Remember – we have to prove that the home is defective because of Chinese drywall – not that the home contains Chinese drywall.”
But Mackle said he feels he has no choice.
“This is not easy for me to do, but I don’t see that I have any options. It can’t be left alone,” he said. “Who’s going to rent the place? Who’s going to buy it from me?”
Source: AP
Condo conversions collapse
Much of the attention heaped on South Florida’s struggling condominium market has been focused on the sexy, luxury towers that shot up along the coastal waterways. Before the curious eyes of the world, a historic construction boom restyled the skyline in just a few short years. But beyond the waterfront properties and the focus of the national media, in South Florida’s less come-hither heartland – communities such as Kendall, Hialeah and Lauderhill – an even larger wave of condo creation was taking place and bringing rapid change to the housing landscape.
Hundreds of rental buildings, representing tens of thousands of units, were being bought by developers, emptied of renters and turned into condominiums for quick resale, mostly to investors and speculators, as so-called condo conversions. And now that slice of the market is in real trouble.
Since 2003, when housing prices took off, more than 74,000 rental apartments were converted into condominiums in Miami-Dade and Broward counties, twice as many as the previous 50 years combined, according to state records of condo conversion applications. The number compares to roughly 53,000 new units constructed in both counties since 2003, according to research of state records by Condo Vultures, a Bal Harbour-based brokerage and real estate consultancy. As the fallout from the housing collapse continues, the conversion market – largely a collection of aging garden-style complexes and dowdy mid-rise buildings – is shaping up as one of the biggest losers of the downturn.
Most real estate analysts predict it will be the last submarket to recover since it is competing for scarce buyers with the swanky supply of new condos being marketed at cut-rate prices.
“It’s ugly out there. The conversion market is extremely dysfunctional,” said Constantine Scurtis, the Miami-based vice president of The Lynd Co., a large, national apartment management company headquartered in San Antonio. “There were a lot of inexperienced developers that converted product that never should have been converted.”
Extreme example
While almost all condos have faced plunging values, abysmal sales, high foreclosure rates and cash-strapped condo associations since the market took a dive two years ago, condo conversions have all those problems in the extreme, analysts said.
Adding to their woes are aging buildings, developer disputes, high rates of absentee landlords and foreclosures of entire projects.
Median prices for conversions are down by an estimated 60 to 75 percent since peaking. Overall, median home prices have fallen by just over 50 percent in Miami-Dade County and 60 percent in Broward, according to statistics from the Florida Association of Realtors.
Grant Stern, a mortgage consultant in Bay Harbor Islands, who joined partners in converting an apartment building during the boom, estimates that between 10,000 and 20,000 units are severely underwater and at risk of being reverted to rentals.
Vince Yambrovich, for example, paid about $174,000 for a condo at the Mirassou conversion in Northwest Miami-Dade when the market was at its peak. Now similar units are being listed for about $50,000, he said.
“People camped out to buy these places – my family didn’t do that – but several people that are still living here did and they talk with … regret about that experience to be first in line to buy one of these places. Nobody saw this coming,” Yambrovich said.
Investors have begun picking through the distressed projects, looking for high quality complexes whose developers have sold only a few units.
Scurtis says his company has access to a $500 million fund and is actively seeking to acquire bank notes and distressed South Florida conversions that can easily be turned into rentals.
The biggest challenge to so-called conversion reversions is getting lenders to stomach the huge losses, he said. “Some of them cannot take the losses because it will put them out of business,” Scurtis said. “They’ve been frozen like deer in headlights.” Stern said he was arranging financing for a developer looking to buy back 35 units from condo owners for a conversion reversion. Down the road, the idea would be to resell the entire apartment complex when the market recovers.
Renting out the remaining units in one of these “fractured” projects can pose difficulties for developers, especially when high foreclosure rates have left condo associations on the ropes.
Not only is the money coming in from the associations insufficient to keep buildings up, but the tolerance levels of owners and renters also are different. “You are dealing with a lot of homeowners, so you can’t take the place over with your maintenance crews and leasing offices,” Scurtis said.
Relatively forgotten by developers until the early 2000s, conversions were rediscovered as an inexpensive way to provide affordable housing and homeownership to low-paid workers in South Florida’s service and tourism industries.
Cashing in
When both prices and demand began to heat up in 2002, though, the virtues of conversions as quick, easy and profitable investments became clear to astute converters looking to cash in on rising property values and potential buyers’ belief that prices would continue to go up, up and up.
“To convert an apartment into a condo building required a legal declaration, a coat of paint, some new sod and blacktop for the garage, and you had a condo conversion,” said Peter Zalewski, Condo Vultures president. New construction could take two to three years or more to bring to market. Conversions, by comparison, could be turned around in nine to 12 months. The relatively simple process drew a crowd of new condo converters to the field, from doctors and plumbers, to attorneys and mortgage brokers. They pooled their money and dove in. Project financing was ample and ubiquitous.
“The root cause of the condo conversion boom was that residential apartment values were skyrocketing in comparison to the commercial income value of the apartments,” Stern said.
In much the same way that investors were making unsolicited offers to homeowners to purchase their properties, condo conversion companies were making handsome offers to buy apartment complexes from multifamily operators.
“Developers were trying to get as many deals as they could,” said Robert White, a managing director of KW Property Management & Consulting, a Coral Gables-based firm that helped arrange financing for several converters during the boom. It now handles several failed conversion projects for lenders.
Rental depletion
The result, according to analyst Jack McCabe of McCabe Research & Consulting, was “an incredible depletion in the rental apartment pool – in Florida, but especially in Miami.”
The sweep pushed rents up by 14 percent in 2006, McCabe said. “We lost over a third of the apartments to condo converters.”
At the beginning of the craze, developers were buying new apartment buildings for roughly $80,000 to $85,000 a unit, said Adam Cappel, president of Miami-based CondoReports.com, a condo consultancy. As the boom progressed, unit prices skyrocketed to $165,000.
As the best properties were snapped up, developers eventually began turning to older complexes. “Generally, converters were looking for 15 percent [or higher return] on their total development budget. So if the complex cost $40 million to buy and they needed to put in another $10 million in costs, then they would want to project a $7.5 million to $10 million profit beyond those costs,” Cappel said.
Some deals returned more. Others, obviously, ended in bankruptcy and foreclosure when the market turned, Cappel said.
Meanwhile, easy credit made homeowners and investors out of people who had little ability to afford a new condo in the soaring market. Thousands of renters, who may not even have been looking to own, were offered a chance to buy their units.
White, of KW Management, said developers offered renters first dibs on properties slated for conversion. Lenders often set up shop on the premises to peddle payment-option adjustable rate loans and mortgages requiring no proof of income or assets. Enticements included no closing costs and no money down. “Those deals [to renters] were best for developers,” White said. “Often their units wouldn’t need any upgrades. A lot of people wanted their units ‘ as is.’”
Around 25 percent of the renters would end up buying in typical projects, White said.
Easy investment
Other investors and speculators flocked to conversions not only because they were less expensive than new construction but also because developers of the ready-made product required no preconstruction deposits as builders of new condos did.
“For speculators with no financial wherewithal to enter the market, conversions were the way,” Cappel said. Teaser-rate loans allowed them to buy several units, rent them out or flip them as values rose. As conversions opened with grandiose sales events, some developers sold out their units in a matter of hours to buyers who sometimes camped out overnight so they could be among the first purchasers.
By the end of 2005, it was becoming clear to consultants like McCabe that the rate of conversion projects coupled with new condo construction was leading to a serious oversupply. “And, we knew that well over 50 percent of the sales were going to speculators,” McCabe said.
Analysts say the crash of the conversion market came in early 2006. White said instead of one or two deals a week, rather abruptly his company went to handling no deals at all. Units continued to sell for another six months but eventually that, too, slowed to a trickle.
With the pool of buyers evaporating, KW Management, whose job on some projects had been to kick out renters because prices had risen beyond their reach, began a mad scramble to bring renters back in.
Pulling back
Overall, some 16,000 conversions have been pulled back into the rental pool since the market cooled, according to McCabe. The number grows daily.
As the market turned to cinders, buyer incentives such as free granite upgrades and no maintenance fees for two years worked for only a short while. The efforts became, as White put it, “like putting a Band-Aid on a leg that had been cut off.”
When 2008 rolled around, the chips had fallen. Those developers who failed to close their units were trapped in a financial vise.
The market freeze caught many in the midst of project renovation with construction dust still in the air. “They had torn up the units to renovate them. They couldn’t sell them, but they couldn’t rent them. Then, they were in a world of trouble,” White said. Conversion foreclosures have been widespread. White’s company, for example, currently manages 20 foreclosed projects in receivership.
Timing turned out to be crucial. Analysts said most developers who delivered conversions to the market in 2006 are stuck with significant unsold inventory.
Some of those who sold at least half of their units, however, are able to stay afloat by renting out what’s left.
But other developers have simply run out of money. Flameouts range from small, individual converters to Juan Puig of Puig, Inc., one of the first major conversion companies to file for bankruptcy.
Unable to shoulder their share of maintenance fees, these developers typically have projects that are in very bad shape. “Vendors are not being paid; electricity and water are turned off. The garbage is not being picked up. It’s bad. Some are complete disasters,” White said.
While no one is tracking how many condo conversion buildings are in foreclosure or bank-owned, analysts believe it is easily in the hundreds.
Meanwhile, conversion owners like Yambrovich are stuck in quickly deteriorating properties. The Mirassou condo association is receiving demand letters from creditors because high fee delinquencies and foreclosures have made it impossible to pay all the bills.
“I see our situation as being kind of like a renter,” Yambrovich said. “We’ll never sell the place and be able to pay off the mortgage, but we need a place to live right now. So, we’re living – existing here.”
Copyright © 2009 The Miami Herald,
Hundreds of rental buildings, representing tens of thousands of units, were being bought by developers, emptied of renters and turned into condominiums for quick resale, mostly to investors and speculators, as so-called condo conversions. And now that slice of the market is in real trouble.
Since 2003, when housing prices took off, more than 74,000 rental apartments were converted into condominiums in Miami-Dade and Broward counties, twice as many as the previous 50 years combined, according to state records of condo conversion applications. The number compares to roughly 53,000 new units constructed in both counties since 2003, according to research of state records by Condo Vultures, a Bal Harbour-based brokerage and real estate consultancy. As the fallout from the housing collapse continues, the conversion market – largely a collection of aging garden-style complexes and dowdy mid-rise buildings – is shaping up as one of the biggest losers of the downturn.
Most real estate analysts predict it will be the last submarket to recover since it is competing for scarce buyers with the swanky supply of new condos being marketed at cut-rate prices.
“It’s ugly out there. The conversion market is extremely dysfunctional,” said Constantine Scurtis, the Miami-based vice president of The Lynd Co., a large, national apartment management company headquartered in San Antonio. “There were a lot of inexperienced developers that converted product that never should have been converted.”
Extreme example
While almost all condos have faced plunging values, abysmal sales, high foreclosure rates and cash-strapped condo associations since the market took a dive two years ago, condo conversions have all those problems in the extreme, analysts said.
Adding to their woes are aging buildings, developer disputes, high rates of absentee landlords and foreclosures of entire projects.
Median prices for conversions are down by an estimated 60 to 75 percent since peaking. Overall, median home prices have fallen by just over 50 percent in Miami-Dade County and 60 percent in Broward, according to statistics from the Florida Association of Realtors.
Grant Stern, a mortgage consultant in Bay Harbor Islands, who joined partners in converting an apartment building during the boom, estimates that between 10,000 and 20,000 units are severely underwater and at risk of being reverted to rentals.
Vince Yambrovich, for example, paid about $174,000 for a condo at the Mirassou conversion in Northwest Miami-Dade when the market was at its peak. Now similar units are being listed for about $50,000, he said.
“People camped out to buy these places – my family didn’t do that – but several people that are still living here did and they talk with … regret about that experience to be first in line to buy one of these places. Nobody saw this coming,” Yambrovich said.
Investors have begun picking through the distressed projects, looking for high quality complexes whose developers have sold only a few units.
Scurtis says his company has access to a $500 million fund and is actively seeking to acquire bank notes and distressed South Florida conversions that can easily be turned into rentals.
The biggest challenge to so-called conversion reversions is getting lenders to stomach the huge losses, he said. “Some of them cannot take the losses because it will put them out of business,” Scurtis said. “They’ve been frozen like deer in headlights.” Stern said he was arranging financing for a developer looking to buy back 35 units from condo owners for a conversion reversion. Down the road, the idea would be to resell the entire apartment complex when the market recovers.
Renting out the remaining units in one of these “fractured” projects can pose difficulties for developers, especially when high foreclosure rates have left condo associations on the ropes.
Not only is the money coming in from the associations insufficient to keep buildings up, but the tolerance levels of owners and renters also are different. “You are dealing with a lot of homeowners, so you can’t take the place over with your maintenance crews and leasing offices,” Scurtis said.
Relatively forgotten by developers until the early 2000s, conversions were rediscovered as an inexpensive way to provide affordable housing and homeownership to low-paid workers in South Florida’s service and tourism industries.
Cashing in
When both prices and demand began to heat up in 2002, though, the virtues of conversions as quick, easy and profitable investments became clear to astute converters looking to cash in on rising property values and potential buyers’ belief that prices would continue to go up, up and up.
“To convert an apartment into a condo building required a legal declaration, a coat of paint, some new sod and blacktop for the garage, and you had a condo conversion,” said Peter Zalewski, Condo Vultures president. New construction could take two to three years or more to bring to market. Conversions, by comparison, could be turned around in nine to 12 months. The relatively simple process drew a crowd of new condo converters to the field, from doctors and plumbers, to attorneys and mortgage brokers. They pooled their money and dove in. Project financing was ample and ubiquitous.
“The root cause of the condo conversion boom was that residential apartment values were skyrocketing in comparison to the commercial income value of the apartments,” Stern said.
In much the same way that investors were making unsolicited offers to homeowners to purchase their properties, condo conversion companies were making handsome offers to buy apartment complexes from multifamily operators.
“Developers were trying to get as many deals as they could,” said Robert White, a managing director of KW Property Management & Consulting, a Coral Gables-based firm that helped arrange financing for several converters during the boom. It now handles several failed conversion projects for lenders.
Rental depletion
The result, according to analyst Jack McCabe of McCabe Research & Consulting, was “an incredible depletion in the rental apartment pool – in Florida, but especially in Miami.”
The sweep pushed rents up by 14 percent in 2006, McCabe said. “We lost over a third of the apartments to condo converters.”
At the beginning of the craze, developers were buying new apartment buildings for roughly $80,000 to $85,000 a unit, said Adam Cappel, president of Miami-based CondoReports.com, a condo consultancy. As the boom progressed, unit prices skyrocketed to $165,000.
As the best properties were snapped up, developers eventually began turning to older complexes. “Generally, converters were looking for 15 percent [or higher return] on their total development budget. So if the complex cost $40 million to buy and they needed to put in another $10 million in costs, then they would want to project a $7.5 million to $10 million profit beyond those costs,” Cappel said.
Some deals returned more. Others, obviously, ended in bankruptcy and foreclosure when the market turned, Cappel said.
Meanwhile, easy credit made homeowners and investors out of people who had little ability to afford a new condo in the soaring market. Thousands of renters, who may not even have been looking to own, were offered a chance to buy their units.
White, of KW Management, said developers offered renters first dibs on properties slated for conversion. Lenders often set up shop on the premises to peddle payment-option adjustable rate loans and mortgages requiring no proof of income or assets. Enticements included no closing costs and no money down. “Those deals [to renters] were best for developers,” White said. “Often their units wouldn’t need any upgrades. A lot of people wanted their units ‘ as is.’”
Around 25 percent of the renters would end up buying in typical projects, White said.
Easy investment
Other investors and speculators flocked to conversions not only because they were less expensive than new construction but also because developers of the ready-made product required no preconstruction deposits as builders of new condos did.
“For speculators with no financial wherewithal to enter the market, conversions were the way,” Cappel said. Teaser-rate loans allowed them to buy several units, rent them out or flip them as values rose. As conversions opened with grandiose sales events, some developers sold out their units in a matter of hours to buyers who sometimes camped out overnight so they could be among the first purchasers.
By the end of 2005, it was becoming clear to consultants like McCabe that the rate of conversion projects coupled with new condo construction was leading to a serious oversupply. “And, we knew that well over 50 percent of the sales were going to speculators,” McCabe said.
Analysts say the crash of the conversion market came in early 2006. White said instead of one or two deals a week, rather abruptly his company went to handling no deals at all. Units continued to sell for another six months but eventually that, too, slowed to a trickle.
With the pool of buyers evaporating, KW Management, whose job on some projects had been to kick out renters because prices had risen beyond their reach, began a mad scramble to bring renters back in.
Pulling back
Overall, some 16,000 conversions have been pulled back into the rental pool since the market cooled, according to McCabe. The number grows daily.
As the market turned to cinders, buyer incentives such as free granite upgrades and no maintenance fees for two years worked for only a short while. The efforts became, as White put it, “like putting a Band-Aid on a leg that had been cut off.”
When 2008 rolled around, the chips had fallen. Those developers who failed to close their units were trapped in a financial vise.
The market freeze caught many in the midst of project renovation with construction dust still in the air. “They had torn up the units to renovate them. They couldn’t sell them, but they couldn’t rent them. Then, they were in a world of trouble,” White said. Conversion foreclosures have been widespread. White’s company, for example, currently manages 20 foreclosed projects in receivership.
Timing turned out to be crucial. Analysts said most developers who delivered conversions to the market in 2006 are stuck with significant unsold inventory.
Some of those who sold at least half of their units, however, are able to stay afloat by renting out what’s left.
But other developers have simply run out of money. Flameouts range from small, individual converters to Juan Puig of Puig, Inc., one of the first major conversion companies to file for bankruptcy.
Unable to shoulder their share of maintenance fees, these developers typically have projects that are in very bad shape. “Vendors are not being paid; electricity and water are turned off. The garbage is not being picked up. It’s bad. Some are complete disasters,” White said.
While no one is tracking how many condo conversion buildings are in foreclosure or bank-owned, analysts believe it is easily in the hundreds.
Meanwhile, conversion owners like Yambrovich are stuck in quickly deteriorating properties. The Mirassou condo association is receiving demand letters from creditors because high fee delinquencies and foreclosures have made it impossible to pay all the bills.
“I see our situation as being kind of like a renter,” Yambrovich said. “We’ll never sell the place and be able to pay off the mortgage, but we need a place to live right now. So, we’re living – existing here.”
Copyright © 2009 The Miami Herald,
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