MIAMI – The tragic collapse of a residential tower spooked South Florida homebuyers and real estate investors alike into reassessing the risk of buying in the Miami-area condo market.
The market had been booming before Covid. Then it soared even higher as the work-from-anywhere culture took hold. But then in late June, scores of people were crushed to death in the Champlain Towers South collapse in Surfside.
Now, the market is focused on engineering inspection reports from older towers, which are required by the state to get recertified every 40 years. Insurers are also under scrutiny, as they hold the keys to new purchases in the market.
“No one in their right mind is going to buy a condo built before 2000 unless they have a safety certificate for the structure of the building, and it doesn’t exist today,” said Peter Zalewski, a South Florida condominium expert, consultant and analyst.
The Miami area has long been a tale of two condominium markets: those built before and after the year 2000, when strict new building codes born of damage from Hurricane Andrew went into effect. Now, after the tower disaster, the divide is suddenly even wider.
“Zoning was upgraded to the point where Miami Dade County zoning is probably some of the toughest in the state or the country, and as a result of that we were able to build again,” said Zalewski. “The thing is people weren’t aware of it prior to Champlain. Now, everybody knows about it, so there’ll be a great divide.”
While condo boards are rushing to send letters of assurance to owners, Zalewski said potential buyers cannot see inspection reports.
“No condo I’ve ever seen, and I’ve been here since 1993, has ever openly shared that information. There is a lack of transparency in the condo market here, by design, it is a sell-side market,” he said. “The condo association might put out the information right now. How did they find these engineers and why haven’t they shared them previously?”
Condominiums along the coast of Miami.
Jeffrey Greenberg | Universal Images Group | Getty Images
That has potential buyers slightly skittish, even though Miami has been possibly the hottest housing market in the nation for the past year.
Pending condo sales in Miami-Dade County, representing signed contracts, were up 86% in June year over year, according to data from Jonathan Miller for real estate company Douglas Elliman. The median price of a condo was up 25% from a year earlier, according to the Miami Association of Realtors.
A complicated market
Numbers provided by Zalewski, who runs a local condo data and analytics website called Condo Vultures, show older condos were seeing much more action in the first part of this year, with an average 259 sales per month. Condos built after 2000 averaged 154 sales per month during the period.
The older ones are cheaper, with an average sale price just under $485,000. The average for post-2000 construction is just over $2 million.
Miami essentially saw two major condo construction booms, in the 1970s and in the last 15 years. Miami Beach alone has 79 condo buildings built before the year 2000. Sixty were built in the last 20 years. On mainland Miami, east of I-95 by the bay, 166 new towers were built since 2000, with still more going up.
The Surfside collapse may now shift the demand dynamic toward new construction.
“The developers are not lowering prices on new construction, and they’re going to probably have more people coming into their sales center than they were expecting,” said Paul Sasseville, an agent with Compass in Miami.
Sasseville said demand should hold for some older condos, as long as it can provide engineering reports.
“Most of the major well-run condominiums have already sent out a letter from an engineer to all of the owners that all the Realtors are now requesting. What have they done in the last two years, what have they done in the last five years, and what is the reserves are like,” he said.
But it remains to be seen if potential buyers can see those reports. Buyers will now have to also factor in the potential of much higher condo fees for repairs that may have been ignored before.
“I believe that it will have a little bit of a chilling effect on older condo buildings. If not quite a chilling effect, people will be much more careful and ask a lot more questions about the maintenance of buildings before making buying decisions,” said Sepehr Niakan, an agent with Blackbook Properties in Miami.
Niakan said that in the past, agents would ask simply if the building had its 40-year recertification, but it was always a financial question relating to possible future repair expenses.
“Now, I think what is going to change is they’re actually asking for their health and safety in addition to the money,” he added.
In this aerial view, search and rescue personnel work after the partial collapse of the 12-story Champlain Towers South condo building on June 24, 2021 in Surfside, Florida.
Joe Raedle | Getty Images
Buying in Miami usually slows down in the summer, mostly because of the heat and less urgency from buyers in cold climates. As of now, agents say interest is still there, but it’s definitely different.
“People are still looking at them but being careful,” Niakan said. “They want to see that work has been done. So a red flag is if you see a condominium with half the monthly HOA [homeowners association] fees of every other building. If it looks too good to be true, it is too good to be true.”
Miami has long been a market replete with international investors. The largest home listing site in China, Juwai, just put out an alert: “For at least 12 months, we advise buyers to refrain from purchasing units in South Florida buildings that are more than 10 stories in height and 30 years in age without first obtaining an independent assessment and estimates of potential future maintenance and remediation costs.”
The question now is, are there bargains to be found? Zalewski said he is already getting calls from owners wondering if they should sell and investors looking to buy.
“You’ll see a great divide occur. Investors who are looking for a return, they’ll be focused on these older buildings with the plan that the condominiums will be terminated knocked down, and new towers will rise on them, probably about two to three times higher per square foot,” he said.
Sasseville said he received calls barely a day after the collapse.
“People called to see if it was a buying opportunity. We absolutely had calls saying, ‘Hey, I’m confident in the construction of the well-run condominiums. I like building A, B and C, please let me see if I can get a really good price out of this,'” he said.