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Thread: Condominium end-of-life (What to do when the building is un-repairable)

  1. #1
    Cyburbian
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    Condominium end-of-life (What to do when the building is un-repairable)

    I have a question: what happens when a condominium needs to be torn down?

    What I mean by that is: Say a condominium building is getting old, and something is very wrong with it. Perhaps the concrete is rotten to the core. It's going to cost eight kabillion dollars to fix the building. It's just not financially feasible to fix the place. What happens then? With a condominium you own the airspace and a proportional part of the common areas. So if the building gets torn down you own air and 10 sqft of land. Are you screwed? Well maybe not, if someone can put a new building on that lot that is so big as to make your airspace + 10 sqft of land worth at least what you bought the place for. But what if nothing more valuable is going to go there? Are you screwed?

    I ask this because I've been pondering the thought for a while. So much so that I'm going to be exploring the issue as my thesis (I'll be going beyond this question though). Obviously this issue depends somewhat on local law, but I thought I'd ask to see if anyone has any idea of what happens when a condominium needs to be torn down.

  2. #2
    Cyburbian ursus's avatar
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    I don't think the nuances of the ownership would be so problematic that it couldn't be sorted out. First off, very few buildings are just "torn down" without some thought as to the re-provisioning of the land. If the condos are insured, they'll be rebuilt. The association binds everyone together in the decision making process about everything, and you'd still own your proportioned "property" there. I don't think it would be as untenable as you might think. Maybe I'm wrong.
    "...I would never try to tick Hink off. He kinda intimidates me. He's quite butch, you know." - Maister

  3. #3
    Corn Burning Fool giff57's avatar
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    Great question. I have heard that you own from the "paint in". If the rest is common, like I think, the association members would own an equal share in the building and the ground, so as a unit, they would have to decide what to do.
    “As soon as public service ceases to be the chief business of the citizens, and they would rather serve with their money than with their persons, the State is not far from its fall”
    Jean-Jacques Rousseau

  4. #4
    Cyburbian Cardinal's avatar
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    You might think of the building as something that is owned as a partnership. The building's total value is the sum of the partner interests. The challenge, from a redevelopment perspective, is land assembly. An acquiring entity would need to own all of the shares in order to tear it down and redevelop the land. Imagine the difficulty of trying to acquire all of the units in some buildings, which may have hundreds of units. It would be all but impossible without the use of eminent domain, and even then could be expected to take years to complete.
    Anyone want to adopt a dog?

  5. #5
    Cyburbian ColoGI's avatar
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    Quote Originally posted by Cardinal View post
    You might think of the building as something that is owned as a partnership. The building's total value is the sum of the partner interests. The challenge, from a redevelopment perspective, is land assembly. An acquiring entity would need to own all of the shares in order to tear it down and redevelop the land. Imagine the difficulty of trying to acquire all of the units in some buildings, which may have hundreds of units. It would be all but impossible without the use of eminent domain, and even then could be expected to take years to complete.
    My thoughts exactly (which makes your point excellent? ;o) ). This question came up at a conf recently - in the context of opportunities for densification and older apartment buildings and condoification - and there was much hemming and hawing about assembly and the difficulties of large-scale redevelopment. Such places may be the...erm...'affordable housing enclaves' of the near future.

  6. #6
    Cyburbian JimPlans's avatar
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    There are many, many condominiums in Florida. So many that the State has a Division of Florida Condominiums, Time Shares and Mobile Homes. I remember that one of the local papers even had an advice column for condominium owners and board members (the Community Living column in the St. Petersburg Times). So, Florida is a great place to study condo issues, especially now with all of its economic problems. Right now, there's a real problem with foreclosures. What happens when there's no-one there to pay the condo fees?

    Rampant foreclosures leave condo owners stuck with fees

    I don't recall running into your specific issue when I was in Florida, but I'm sure it's happened there (as everything else condo-related has). Living in Florida convinved me to never, ever, ever buy a condominium. Too many ways to get taken.

  7. #7
    Cyburbian TerraSapient's avatar
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    That was a great article JimPlans!

    I too have always wondered about the legal fine print of condo ownership hipp5. That would be an interesting thesis topic. Especially considering the current foreclosure crisis. It sounds as though Florida would be a great study area, and I suspect Hawaii would be an interesting comparison area for our unique real estate market and given that most "home owners" here live in condominiums.

  8. #8
    Cyburbian
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    Imagine the difficulty of trying to acquire all of the units in some buildings, which may have hundreds of units. It would be all but impossible without the use of eminent domain, and even then could be expected to take years to complete.
    Question from one who knows very little, but finds the subject of interest--So, what if the municipality (or other applicable jurisdiction), was to revoke the occupancy permit, or condemn the building?
    Proudly spending today building the dilapidated housing stock of the 22nd century.

  9. #9
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    The article by Hastings and Adams in the article at this link:

    http://its.ucla.edu/shoup/GraduatedDensityZoning.pdf

    explains how condominium buildings are redeveloped in Hong Kong.

  10. #10
    Given that there are owned apartment buildings in Europe that are hundreds of years old, I wouldn't stress about it. The worst that would happen is there would be a special assessment (one time increase in condo fees) in order to do the major reno work on the common space. However, even this should be unnecessary if your board is smart enough to do the reserve fund study every 5 years to budget for major work in that time.

  11. #11
    Cyburbian
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    I think this is a fascinating question - and one that speaks to long-term planning for communities. Some similarities to the big box question and having companies bond to redevelop the big box when it goes vacant.

    While I agree there are condo buildings in Europe that are hundreds of years old (often stone or timber), what we build today often isn't built to last - I even hear of stick-built apartment buildings with an expected life of 40-50 years (30 years longer than the typical shopping center or big box ...) - and some condos are conversions of these apt bldgs!

    One thing I've seen happen in many areas is a cycle where older buildings turn into majority rental buildings, possibly with a cycle of poor maintenance but usually the owners want to do the minimum to protect their investment. Sometimes, if the building is good to begin with and the surrounding market is strong, these buildings flip back over time - as younger owners see an opportunity to get into a cheap condo and fix up the interior. But given the difficulty of financing - it is hard to get a home loan in a building that it 50%+ rental - this seems less likely. Some condos also limit renting in their bylaws so they remain majority owner-occupied.

    The challenge, from a redevelopment perspective, is land assembly. An acquiring entity would need to own all of the shares in order to tear it down and redevelop the land
    I wonder of this is true in every state? What powers does the majority have? I wonder if bylaws can and ever are written to give something like a super-majority the ability to force the sale of the whole thing?

  12. #12
    Cyburbian
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    I think often what happens at the end of a condo’s lifecycle is a development company will buy all the units. This may be through a formal offer to the whole condo at the same time (take it or leave it), or it may be through ‘block busting’ where a developer buys any unit that becomes available and rents them out to questionable tenants driving prices down and causing more people to sell. Once the developer owns over 50% of the units they can take control of the condo board which will accelerate the process (increased fees, less maintenance). The risk is there will be a hold out (often an absentee landlord) that just doesn’t care and refuses to sell. Once the developer owns all the units they can tear down the building and build a new one.

  13. #13
    The closest thing to this around (Boston) were some triple decers (three daily home) that were condoized during the housing boom and then the units were foreclosed on. Typically, developers and apartment owners are buying up the units and either keeping them as condos or re aggregating them back into 3 families. Mot a big deal.

  14. #14
    Cyburbian Richmond Jake's avatar
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    This was just done on a condo project located on a coastal bluff in Santa Cruz CA.
    You can do a search on the page and find additional stories regarding its demolition. It was an ugly structure.

    http://www.santacruzsentinel.com/ci_...ce=most_viewed
    Annoyingly insensitive

  15. #15
    Cyburbian Tobinn's avatar
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    Quote Originally posted by JimPlans View post
    There are many, many condominiums in Florida. So many that the State has a Division of Florida Condominiums, Time Shares and Mobile Homes. I remember that one of the local papers even had an advice column for condominium owners and board members (the Community Living column in the St. Petersburg Times). So, Florida is a great place to study condo issues, especially now with all of its economic problems. Right now, there's a real problem with foreclosures. What happens when there's no-one there to pay the condo fees?

    Rampant foreclosures leave condo owners stuck with fees

    I don't recall running into your specific issue when I was in Florida, but I'm sure it's happened there (as everything else condo-related has). Living in Florida convinved me to never, ever, ever buy a condominium. Too many ways to get taken.
    This condo is about 15 minutes from my house. When my wife and I were looking to buy a house we looked at some condos but decided against it. What was very common was the conversion of apartment buildings into condominiums. I'm afraid that the story in the St. Pete Times is somewhat typical. A friend of mine bought a townhome in the area. One of about 15 or so that were built. There were supposed to be another 100 or so units built. They weren't. These few owners are now responsible for the upkeep of the Condo. Clubhouse and pool which the can't (according to my friend) afford. I'm not sure what they are going to to about it.

    The same thing is happening to SFR development with HOAs. I remember one development I went through two years ago in the Riverview area were it appear one in three homes was vacant/abandoned (not sure if there was a HOA in the neighborhood, though).
    At times like this, you have to ask yourself, "WWJDD?"
    (What Would Jimmy Durante Do?)

  16. #16
    Quote Originally posted by JimPlans View post
    There are many, many condominiums in Florida. So many that the State has a Division of Florida Condominiums, Time Shares and Mobile Homes. I remember that one of the local papers even had an advice column for condominium owners and board members (the Community Living column in the St. Petersburg Times). So, Florida is a great place to study condo issues, especially now with all of its economic problems. Right now, there's a real problem with foreclosures. What happens when there's no-one there to pay the condo fees?

    Rampant foreclosures leave condo owners stuck with fees

    I don't recall running into your specific issue when I was in Florida, but I'm sure it's happened there (as everything else condo-related has). Living in Florida convinved me to never, ever, ever buy a condominium. Too many ways to get taken.
    Division of Florida Condominiums? I've never heard of that, do you know if they have representatives in Fort Lauderdale? I'm searching for a new condo in the area and would like to ask for some professional advices. I don't understand why are you so negative about the condominiums at all.. I thought they're a good investment.

  17. #17
    Cyburbian michaelskis's avatar
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    Michigan Law protects people from developers walking away from condos, but the OP does raise an interesting question.

    My first thought was what happens when a home owners association can not afford the maintenance and repairs of the roads and common areas?
    There is no such thing as failure, only learning experiences. However, it is our choice to learn the lesson and change or not.

  18. #18
    Cyburbian Random Traffic Guy's avatar
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    I was reminded of this topic, a real estate blog I read had some interesting articles on the age differences of tenants at condos in their area, and how it might affect the buildings' future prospects and/or buying strategy for newcomers. Here's the first article, search for "condo demographics" for others: http://candysdirt.com/2015/07/31/hig...nomics-matter/

  19. #19
    Cyburbian Habanero's avatar
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    Quote Originally posted by michaelskis View post
    Michigan Law protects people from developers walking away from condos, but the OP does raise an interesting question.

    My first thought was what happens when a home owners association can not afford the maintenance and repairs of the roads and common areas?
    Around here - we have an HOA that sold the large open space, that was supposed to be a golf course, to the city and it's passive open space the city maintains. The smaller areas are still maintained by the HOA.

    We just got a condo project in with private streets, usually they've been trying to develop with private drive aisles similar to an apartment complex. I'm highly skeptical it will be sustainable in future decades. We have only two private road SFR developments and both have been asking the city to take back the roads due to the cost to maintain them, and keep in mind, the homes are easily $500k and up and they knew street maintenance was the HOA's responsibility.But now that they need to actually resurface the pavement they want out of the business.
    When Jesus said "love your enemies", he probably didn't mean kill them.

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