The Journal. - Years After Surfside Collapse, Florida Condos Are In Crisis

Episode Date: May 22, 2024

Florida condominium buildings are undergoing inspections after the state set new requirements for how often the structures are put to the test. WSJ's Deborah Acosta explores how costs in one building have climbed to over $134,000.  Further Reading: - New Florida Law Roils Its Condo Market Three Years After Surfside Collapse  - Florida Condo Owners Brace for New Inspection, Reserve Requirements  Further Listening: - Who's in Charge of Fixing Miami's Aging Condos?  - The Mixed Signals from the Collapsed Condo's Past  Learn more about your ad choices. Visit megaphone.fm/adchoices

Sari Papir lives in North Miami in a 21-story building called the Cricket Club. Sari moved into the Cricket Club in 2018 with her partner. They were looking for a place to retire, and she says that the building checked a lot of their boxes. What did you like about it? that the building checked a lot of their boxes. What did you like about it? First of all, the apartment. It's a three-bedroom, three-bath,

which you can't find anywhere. So I have a his and her bathroom, which to us, that is the world. A balcony that, like I said, it overlooks Miami and the ocean. But the building, it has valet, it has a great gym, it has a beautiful pool by the ocean. But the building, it has valet, it has a great gym, it has a beautiful pool by the water. The building looked great.

It seemed like a great place. As a matter of fact, we bought it to spend the rest of our lives here. And did it live up to your expectations? It did until now. Earlier this year, Sari got an unexpected bill from her condo association for $134,000. And her dream retirement home started to feel more like a nightmare.

It's a story that's happening all across Florida after the state passed new laws in 2022 to improve building safety. That triggered a wave of costly repairs, forcing many condo owners to make a choice, pay up or move out. Welcome to The Journal, our show about money, business, and power. I'm Kate Linebaugh. It's Wednesday, May 22nd. Coming up on the show, Florida's new housing crisis, getting crumbling condos up to code.

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Unapologetically full-flavored cocktails with a 13% punch. Seagram 13, dare to make your own luck. Must be legal drinking age. Please enjoy responsibly. Available at the LCBO. In the summer of 2021, a major disaster shocked condo residents in Florida. A building in a town north of Miami collapsed. Our colleague Deborah Acosta covered the aftermath.

It happened in the middle of the night. A condo building that was built in the 80s, early 80s, partially collapsed in the middle of the night out of nowhere. 529, the breaking news, a search and rescue operation is underway in Miami, a town called Surfside. You can see they pulled one boy from the rubble of this condo building. Do you remember what the scene looked like when you first walked up? So much dust. A lot of people, kind of mouth agape, standing on the sand. And we opened up the door to our apartment, and there to be a hundred yard hallway and it was rubble. It's like really shocking to say this, but like when you're looking from a distance, you see nothing.

Like you see the skyline and all the other buildings one after the other. And then suddenly there's a huge gap and all you see is like this smoke billowing, you know, kind of the dust kind of billowing in the air. The final death toll is 98. Officials are calling the disaster one of the deadliest structural building failures in U.S. history. It was absolutely horrifying, tragic, heartbreaking to see, you know, what this does to a community and like to people's sense of safety. And it was like this red flag that got everybody wondering, I mean, if it happened there at this particular building, how many other buildings

in Florida are in that same kind of bad condition? A federal investigation into the cause of the Surfside collapse is ongoing. Preliminary findings from the investigation point to a failure in its pool deck and suggest that the 39-year-old tower failed to meet building codes. You know, one of the problems with these condo buildings is that there wasn't a ton of regulation around them. In South Florida, in particular, Miami-Dade, there was a requirement in Miami-Dade, Broward, and Palm Beach counties that buildings pass a 40-year recertification, is what they called them. But there wasn't a ton of enforcement around this. is what they called them.

But there wasn't a ton of enforcement around this. For years, many older condo buildings had delayed expensive repairs that were discovered in their 40-year inspections. Often, some of these buildings that had deferred maintenance for many years had to kind of take on these big projects to renovate the pool decks and waterproof the exterior walls of the building.

And people were taking their time in some of these buildings, even five, and people were taking their time in some of these buildings, even five, six years delayed with their recertifications. And so that was kind of the way that things were going in South Florida up until we had this horrible tragedy of the Surfside building collapse. After the Surfside collapse, Florida lawmakers took action. After the Surfside collapse, Florida lawmakers took action. In May of 2022, Governor Ron DeSantis signed a law that requires condo buildings three stories or higher to pass structural inspections. Now the law requires buildings in the entire state of Florida to pass a milestone inspection no later than 30 years after they are built. And so this milestone inspection

would deem the building structurally sound. An engineer would come in, take a look and say, okay, you guys are in great shape. You're good for another 10 years. And so these milestone inspections after that 30 year mark would happen every decade thereafter. The idea behind these is that, well, if you've been maintaining your building in the way that you're supposed to ever since it was built, then ideally it's somebody coming in and check, check, check, everything's fine, let's move on. However, if you haven't been maintaining them as well, or if you've taken too long to address certain issues in the building, that milestone inspection may trigger a ton of work on your building suddenly to get it ready for that inspection. This law applies to a lot of buildings around Florida. In Miami, for instance,

almost three-quarters of condo buildings are at least 30 years old. And Deborah says that many condo associations are finding that their buildings need extensive repairs to pass inspections. Buildings like the Cricket Club. The Cricket Club was built in 1975. It's nearly 50 years old. The Cricket Club is kind of that quintessential Miami heyday, 1970s, 1980s, like cocaine cowboys era. And it had a nightclub in the basement called the Cricket Club. Ooh la la.

Oh, yes. And it was the place to be. It actually made headlines a ton of times because of all the crazy things that happened there. Like part of the Saudi royal family made it their home for a while in the early 80s. There was an illegal helicopter landing pad on the roof. I mean, there are rumors about a Rolls Royce blowing up in front of the building. I mean, like all sorts of crazy stuff was going on in the cricket club back in the day. Today, the cricket club is way past its heyday. Now it's not Saudi royalty that's going in and out of the building.

It's inspectors. The building was due for its 40-year inspection in 2015. And the inspection revealed some big problems. To fix those problems, the condo board had to shell out a lot of money, and it took a long time. And in this case, they spent from like 2016 through 2020 working on a bunch of different things in the building. They took out about $9 million in loans, some of which was used for these renovations. They renovated the pool deck at the cricket club. So they did quite a few different projects across the building and felt pretty good about themselves, right? Under Florida's new law, the cricket club needed to be inspected

again. And the latest inspection turned up another huge list of repairs. Okay, do you have the list there? I have the list. Oh, wow. Okay. Yeah, with all the stuff on it. Air conditioning system, north and south facade waterproofing, roof replacement, expansion joints waterproofing, sewer connection net cost, east-west rotunda waterproofing, pool infrastructure repairs, security system, fire control panel, first floor impact glass, emergency life safety improvements, electrical recertification, elevator replacement, heating and hot water system, package room, bi-directional emergency communications, Integra gate easement, milestone structural report. Total project cost, $29 million.

But the cricket club doesn't have the money to pay for those repairs. So the condo owners need to shell out their portion of the total bill, which works out to about $134,000 each. which works out to about $134,000 each. How has that gone down among the cricket club unit holders? Not well. Definitely not well. Some people are extremely distraught.

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Sari says she and her partner don't have the $134,000 the condo board is asking for, and neither do many of her neighbors. How has this changed things in your community? What is the atmosphere like at the cricket club? I'm going to tell you, if we're in the lobby or if we're in one of the common areas and people are talking, you can hear them. I haven't slept last night. I can't even eat. I don't know what I'm going to do, where I'm going to go. I spoke to my daughter.

I spoke to my son. They can't help me. That's what you hear around the building. People are literally getting sick. People are literally losing their nerves, their sleep, and they're going to lose their livelihood and their homes. That's what's happening. What are you going to do? We don't know. We don't have too many choices. The problem is this. If we are going to stay and pay that amount, we need a loan. Sari says securing a bank loan is virtually impossible

because banks don't want to take the risk when condo associations don't have enough reserves. What are reserves? So reserves is just money saved up for... On reserve. Yeah, exactly. Money on reserve that's collected year after year from all of the residents, little by little.

Like a rainy day fund. Exactly, a rainy day. But I mean, we know that rainy day is coming because we know the building will at some point be 15 years old and is going to need XYZ done to it. Like, everything needs maintenance, right? And so it's really something you're going to need at some point. Many condo buildings, including the Cricket Club,

don't have that rainy day fund saved up. That's because Florida law didn't require them to collect the money. Because Florida law allowed buildings to waive these year after year, guess what? It's like, well, we could collect all these dues every year as part of our monthly maintenance fees, or we can keep our monthly maintenance fees lower. What do you guys think? I vote for lower. Most people are going to vote to pay less, right? And because you could

waive them every year by law, then people just did it without even thinking about what the repercussions of that would be, right? But now under the new law, condos are required to collect reserves. So what does that look like? Well, if they have no reserves and they haven't been maintaining, suddenly you have this like ballooning cost of, okay, we've got to fully fund our reserves. We've got to fix all this stuff that hasn't been addressed in the past. The reserves have to cover what we're doing now

and everything going into the future. Our building's already 50 years old, so we're going to have all these other projects in five or 10 years. And so it becomes this like incredibly high cost that condo owners have to bear. The president of the Cricket Club's condo board said the value in the building will, quote,

only grow when we fix it. And for residents, paying that bill will start on July 1st with an initial $15,000 payment. And so, I mean, people are distraught. Some people are holding out hope that perhaps these costs are somehow inflated. And so a lot of people have come together sharing documentation about different aspects

of things that have already been done in the building to try to find ways that they might be wrong. Maybe we can bring the costs down. Maybe we can find other vendors that could do this for cheaper. They're really grasping, trying to figure out ways that they might be able to stay in their units because they cannot afford this assessment. Sari is one of the residents hoping the bill could be lowered. I know that the fact that a building collapsed here in Florida, very close to us, very close to this building, made a

big difference in the whole state of Florida. We all understand that. What we don't understand is the decisions that the board is taking in assessments of $30 million, which means approximately $150,000 cash out of pocket to each owner. That was not in our planning. That was not what we bought for. If Sari doesn't pay, she says her only other option is to sell her condo, a choice many of her neighbors are already taking.

Currently, 40 of the cricket club's 220 units are on the market. But they're not selling. Nobody will touch this building. And if they do, you got to give it away. The last person that sold, maybe a month ago, sold for $110,000 and he had to beg the buyers. So supposing we get lucky, supposing, and we sell for 300

thousand, what are we going to buy? Where are we going to go? We're on a limited budget. I'm still working part-time because of this. So where do you go with 300 thousand? Let alone 110. How do you feel? Trapped. against a wall. So what does this mean for the Florida housing market? I mean, it's clear from what we're seeing in the market that buyers are turning away from these older units. Because once they figure out that,

okay, there's a six-figure special assessment potentially coming next year and lots of other question marks as they start opening up the building and seeing other potential issues and the prices could continue to balloon from there. And so, yes, most people are going to balk at that. So I think the main thing here is like, and it's happening in so many different kinds of ways

in Florida and in South Florida in particular, is that the middle class is getting pushed out, right? This is a huge issue here. You know, all the new construction, the majority of it is luxury. It's a lot of luxury buildings getting built. And like when these condominiums, if they ultimately fail,

like they're unable to make these fixes or they go bankrupt and a developer swoops in and buys it, they're not going to build affordable housing in its place, especially if it's waterfront. You definitely don't want a physically shaky building. But to solve that, it creates some financial trouble for people. That's kind of the bind folks are in.

That's exactly right. Yes, this can has been kicked down the road decade after decade, year after year, and suddenly the bill has come due. And it's like, it's almost like a game of musical chairs, right? People have been living in these buildings, enjoying these buildings year after year. And if you sold before this piece of legislation was passed, like you got out, right?

But now everyone else is left holding the bag. Yeah, like the music stopped. Oh, yes, it did. And if you don't have $130,000 cash on hand, then you're going to be one of the unlucky ones, I think. That's all for today, Wednesday, May 22nd. The Journal is a co-production of Spotify and The Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon.

Thanks for listening. See you tomorrow.