A weekend topic starting with WTSP. “The ongoing property insurance crisis in Florida took center stage Wednesday on Capitol Hill. ‘Our proposed renewal for 2023 was more than $8,000,’ testified Tallahassee resident Deborah Wood, going on to describe the impact spiking insurance costs have had on her and her family. ‘At this stage of our lives, we are not willing to risk our financial well-being by buying a home that one day may be uninsurable or craters in value in a housing market fueled by the insurance crisis,’ Wood added.”
The Real Deal on Florida. “In Pembroke Pines, the Heron Pond condo complex’s property insurer halted coverage in April, and the general liability carrier warned it won’t renew its policy when it expires in June. Near North Miami Beach, the Star Lakes condo complex’s board president said he expects this year’s insurance premiums to be about 45 percent more than the association paid in prior years. And at the Hammocks in West Kendall, the association’s general liability and umbrella insurers refused to renew policies this year, and few new carriers offered new policies. These associations have one thing in common: For years, board members pulled off various types of mismanagement and schemes, lawsuits and homeowners allege.”
“They aren’t alone. Condo associations and HOAs across South Florida have been involved in hotly contested disputes, with owners alleging that boards of directors ran plots such as election meddling, fund misappropriation, insider deals with vendors and inadequate property maintenance despite assessment hikes. While Star Lakes’ insurance broker is putting feelers out in the market, preliminary estimates show new policies would cost $600,000 to $700,000, combined, in annual premiums, Star Lakes board President John Baptiste said. That’s more than the roughly $350,000 to $415,000 the association paid in prior years. ‘It’s just a tremendous amount of negligence that is costing us,’ he said.”
KVUE in Texas. “A new report shows Austin continues to build more apartments than any other large metro despite dramatic changes to the nationwide rental market.bAustin has been the face of the construction boom, leading the way in multifamily permitting per capita for the last seven years. Last year, Austin’s pace for multifamily permits was 61% higher than second place Raleigh, North Carolina. The report states that while Austin is seeing a dramatic slowdown in permits for 2024, it’s still on pace for the most new permits per capita. In January, real estate experts predicted Austin renters would continue to pay steep prices, but rents in the Austin metro have dipped by 7%, according to the report. The dip is also the largest decline of any large metro, which the report attributes to new construction keeping up with the influx of new renters.”
Building Salt Lake. “The Lusso Apartments, at 1025 North Temple has filed for Chapter 11 Bankruptcy, according to a May 31 filing with the US Bankruptcy Court for Utah. In February we reported that two contractors had filed suit to recover nearly $800,000 owed to them by the sole owner of the project, Donovan R. Gilliland. His bank, Ready Capital, is holding a $36.5 million note on the construction loan. Gilliland assessed the unfinished building’s worth at $25 million. Adam Stein-Sapir of Pioneer Funding Group told us that Gilliland may be trying to stop a foreclosure sale by his construction lender, which is the only secured creditor on the project, or renegotiate loan terms with them. When asked if he would try to buy any of Gilliland’s debt, Stein-Sapir told us ‘This would be a tough case for me to get involved in today. It’s looking pretty grim for these contractors who don’t have a lien, and even for those that do.’”
Mansion Global. “Tales of doom about downtown San Francisco can be found in abundance, but some home buyers have a more optimistic view of the future of the city’s financial and tech district. Sales prices for downtown condos were down 4% year over year in the first quarter of 2024, said June McDaniels, a real estate agent with Better Homes and Gardens Real Estate Reliance Partners in Berkeley, California. Instead of multiple offers, downtown condos now take an average of 94 days to sell, which gives buyers time to negotiate. Plus, downtown condos are selling for slightly below the asking price, McDaniels said.”
Multi-Housing News. “Northwind Group provided a $23 million first mortgage to a Bay Area condo property. The senior secured inventory loan was collateralized by the remaining 18 unsold residential condominium units in the recently completed four-story property in Los Altos, Calif. The loan refinances a previous loan and allows Edge Development time to sell the remaining unsold units to achieve maximum sales value. The property was completed this year, with more than one-third of the available units having been sold. Northwind previously provided a $111 million first mortgage condo inventory loan for a 17-story residential condominium tower being constructed by Pelican Builders and Ember Group in Houston. That financing closed in February. The firm also provided financing for a New York City hotel-to-apartment conversion last year in the form of a $100 million senior A-Note.”
The Real Deal on California. “Canadian investment firm Bonnis Properties has defaulted on a loan tied to the Foreman & Clark building in Downtown Los Angeles, a multifamily property currently occupied by short-term rental startup Sonder, The Real Deal has learned. Bonnis is in default on a $56.4 million loan from Ladder Capital, tied to the 147,000-square-foot building at 404 West 7th Street, according to a notice filed with Los Angeles County. A foreclosure auction on the property can be scheduled no earlier than Aug. 8. Bonnis bought the 13-story office building for $52.5 million, and converted it into 125 apartments. The firm then refinanced with the loan from Ladder Capital in 2021, records show. Ladder’s loan was used to refinance construction debt and help fund the lease-up of the property.”
“But by 2023, the property was renamed The Winfield and had emerged as a 125-key, short-term rental hotel, operated by the San Francisco-based startup Sonder. Rooms at the property start at $158 per night, according to its website. Sonder, once valued at $2.2 billion when it went public through a special purpose acquisition company in 2022, has tried to shed some of its master leases recently in an effort to boost its cash on hand. In 2023, the firm reported negative cash flow of $108 million, according to a financial filing. Sonder also failed to file its annual report with the U.S. Securities and Exchange Commission on time this year, meaning it’s out of compliance with Nasdaq listing rules.”
From Bisnow. “Vancouver-based Bonnis Properties has defaulted on a loan tied to a Downtown LA building that less than a year ago opened as an outpost of the short-term rental company Sonder. Sonder has had its own troubles. In March, the San Francisco-based company told investors that two years’ worth of its financial statements contained errors such that they ‘should no longer be relied upon,’ the San Francisco Business Times reported. The company went public in 2021 at a $2.2B valuation, but it was worth $33.4M after markets closed Friday.”
The Wall Street Journal. “Julie Marks rents out her Jericho, Vt., basement and a guest unit on Airbnb. When state officials proposed a bill in 2021 to restrict short-term rentals, she wrote an opinion piece against it in a local paper. Soon, she got a message from Rent Responsibly, the national network for short-term rental host groups that is partly funded by Expedia Group, which owns the vacation rental-listing site Vrbo. Rent Responsibly encouraged her to form her own state group to oppose the bill. At the suggestion of another state’s host group, she hired a lobbyist. Marks and other group leaders met lawmakers for coffee. They testified at hearings and hosted happy hours at local breweries. Within a few months, the Vermont bill was dead.”
“Hosts have formed countless advocacy groups across the U.S. under Rent Responsibly. They are swarming statehouses, flooding towns with letters and showing up at community meetings by the hundreds. Airbnb also helps leaders craft messages and keeps hosts in the loop about coming legislative hearings through its platform. ‘If Airbnb walks in the door, no one is going to support them,’ Marks said. ‘But if Julie Marks and her three friends, who are also Vermonters, walk through the door, they’ll listen.’”
The Globe and Mail in Canada. “There’s a popular bit of folk wisdom that when you’re approaching something new you should hope for the best, prepare for the worst. When it comes to buying a condominium, a new book may give you a whole new list of things you didn’t even know to be prepared for. For instance, did you know that some super-tall high-rise buildings are subject to such high wind pressures that they can force rainwater through even tiny flaws in the waterproofing of exterior walls? According to Sally Thompson, author of Condo Questions and Answers, searching for a leak in even one apartment in such conditions can be a maddeningly expensive prospect. Workers may have to put huge fans outside apartment doors to create negative pressure inside and then people dangling from platforms hanging off the side the building have to spray water all along the surface to hunt out the source of the leak. It happens in modern buildings, according to Ms. Thompson.”
“According to Ms. Thompson, 9 to 15 per cent of all unexpected costs a condominium will face throughout its life will come from the parking garage. And it doesn’t matter the age: Older pre-1985 buildings didn’t have enough waterproofing and that leads to structural decay, but newer buildings with better membranes can also require expensive repairs periodically. ‘We have had several parking garage collapses over the last 30 years, that were eerily similar to the collapse of the Surfside garage: one in Kingston, one in Montreal, one in Mississauga and one in Windsor, [Ont.],’ the book notes.”
“‘A condominium building is intended to be renewed almost in perpetuity, almost as if in suspended animation, neither improving significantly nor degrading significantly,’ says Ms. Thompson. Ms. Thompson warns that for most condominium unit owners, their maintenance fees and reserve fund contributions have to rise every year – and faster than you’d expect. ‘Fee increases at a rate above inflation are the nature of the beast, especially for the first 20 years of the life of the condo,’ she says in the book. ‘Historically, the cost of construction projects has inflated, on average, at a rate of about 1 per cent per year more than consumer goods. This excess inflation on the construction side likely relates to the fact that construction is labour intensive and can’t be offshored the way consumer-goods manufacturing can be.’”
“It doesn’t matter if your building is new or old, those fees are almost certainly going to rise, and in Ontario those reasons were ‘hard wired’ into the province’s condominium legislation in 2001. Simplified, the first condo reserve fund for a newly completed building is calculated at 10 per cent of annual operating budget. Ms. Thompson says that number is almost always too low, requiring increases of reserve fund contributions by individual condo owners to triple in the first years after completion.”
“‘Too-low first-year reserve fund contributions, the 30-year planning horizon and the falsely low first-year operating budget’ all contribute to new buildings starting off in a financial deficit that can take years to show up for unsuspecting residents unaware of the true costs of maintaining high-rise buildings. ‘We’re tricking young people into thinking their condo is more affordable than it really is,’ said Ms. Thompson.”
The Thaiger. “The Thai condominium market is bracing for a storm as Myanmar’s crackdown on property purchases by its citizens threatens to halt a major influx of foreign investment. According to the Thai Condominium Association, the clampdown could significantly impact condo transfers during the second and third quarters of this year. Prasert Taedullayasatit, president of the association, revealed that Thai condo units valued at over 1 billion baht were prevented from being transferred to Myanmar buyers in April and May following the regime’s stringent measures. ‘This will definitely affect developers’ condo transfers in the upcoming quarters. Myanmar buyers, who are an emerging market among foreign buyers, will face increased difficulties in purchasing Thai condos.’”
“With the once-dominant Chinese market slowing, the importance of Myanmar buyers has surged. Prasert noted that Myanmar nationals have become a vital segment, consistently growing in both number and value of condo transfers, unlike the dwindling local market. In Greater Bangkok, a hotspot for Myanmar buyers, condo transfers skyrocketed by 446% year-on-year in the first quarter of 2024, marking the highest increase among all foreign buyers. Vichai Viratkapan, acting director-general of the REIC stated that the Myanmar buyer market has been on the rise since the political turmoil in 2021. ‘Some developers reported that half of their foreign condo transfers were to Myanmar buyers.’”
“Surachet Kongcheep, managing director of Property DNA Co., added that while those booking off-plan units might not be affected, new buyers might need to explore alternative methods for money transfers, or even consider cancellations if necessary.”