Fears Over Older Buildings After Surfside Condo Collapse Lead to Redevelopment Opportunities

Redevelopment opportunities are growing across South Florida for developers and investors as a result of the June 24 condominium collapse in Surfside.

As South Florida counties require more frequent inspections and earlier recertification for condominiums, and as some insurance companies increase rates for older condos after the collapse, developers, investors and residents are looking for other alternatives. 

This could be the most dominant trend for months to come, according to Dan Dratch, director of Multifamily Investments at Franklin Street, a commercial real estate agency in Miami.

“What we’re seeing here at Franklin Street is an absolute uptick in just the overall construction in multifamily assets. If you compare 2021 through the third quarter, there are roughly 76,000 units that are either proposed or currently under construction in the tri-county. If you compare that to all of 2020, there were 46,000 of the same search criteria,” Dratch said. 

As the pandemic continues, the types of places and where people want to live are changing. 

“We’re seeing a lot more movement toward a lot more new construction, and I think that falls in line with cutting off the pandemic. There is a need for nicer, newer places to live,” Dratch said.

With the rising demand, Dratch’s team sees the ability to fill up multifamily units with tenants as growing. Likewise, there’s a rising number of people willing to pay the extra costs to live in areas they consider more ideal.

Dratch says the fear associated with living in an older building has increased since the Surfside tragedy. 

“It’s hard to say it’s not because of that. When you turn on the news, every single regular person that’s not involved in real estate is paying attention to this topic, because it’s being drawn up so much. I think, naturally, that will affect somebody’s own internal criteria as they’re looking for a new place to live. I think people are going to be a bit more guarded when it comes to that.”

Investors Seeking Repositioning Opportunities

Some of the things investors and developers consider when hoping to redevelop are where people are moving for jobs, if an area is walkable and if there are retail centers nearby. 

“Another thing they’re looking for is rent growth. Those are some of the key factors. The interesting thing on the commercial side, as opposed to the multifamily side, the 40-year recertifications are a part of everyday business,” Dratch said.

According to Dratch, most of the deals are being sold with bank financing, and a lot of the lenders require the seller to provide proof of recertification before closing. Although there’s an increase in redevelopment, properties with owners who’ve maintained the building over time as they should have are going to be ahead of the game when it comes to repositioning. 

“Investors are always flowing to properties where they can increase the value through repositioning and if a building has been checking all the boxes off in terms of certifications and being in good shape, it’s going to separate itself from the competition,” Dratch said.

For developers or investors who are looking in South Florida for opportunities, Dratch advises working with a good brokerage firm specializing in a specific field of interest. 

“Working with a company that can provide all those solutions allows a lot more peace of mind as you’re going through these things, and that you’re doing it the right way, so you’re not going to miss something down the road,” Dratch said.

After the condominium collapse, the consequences of a continued lack of upgrades in older buildings have become clear to all, which could drive and change demand. 

“It’s about proactiveness,” Dratch said. “If owners and developers want to be in this business for a long time, they need to adapt and be proactive. Worst-case scenario, this is people’s lives. This isn’t just a building. I think it really does wake people up to the worst-case scenario.”