Articles Posted in Real Estate Development

OscarRivera2014.jpgThe firm’s Oscar R. Rivera wrote an article that appeared today in the Daily Business Review, South Florida’s exclusive business daily and official court newspaper. The article, which was titled “Best Practices for Buyouts of Unit Owners at Older Condos,” discusses recent changes in the Florida condominium termination law and important considerations for developers in these property acquisitions. Oscar’s article reads:

In the last several weeks we learned of a building in Surfside where the developer successfully bought out all of the units from their owners and another in the Brickell area where the developer purchased 60 of the 61 residences from their owners and is now using the statutory condo termination process to acquire the remaining unit and commence its development plans.

During last year’s legislative session, Florida lawmakers made changes to the condominium termination statute that made the process considerably fairer for unit owners. Now owners who are current on their mortgages and association fees must get fair market value, and their entire first-mortgage debt must be satisfied even if it exceeds the current fair market value.

In addition, for the original owners who maintain it as their homestead property, they must be offered their original purchase price regardless of whether it exceeds the current fair market value. The changes also enable some owners to rent their units for a year before moving out and receive a 1 percent relocation fee.

In light of these changes and in an effort to avoid any delays and additional costs due to holdout owners and related litigation, it greatly behooves developers in these buyouts to carefully assess and determine the valuation of the property in order to make very fair and enticing offers to the unit owners.

Keep in mind that the price that is offered to every owner will be based on the same exact price per square foot for every residence in the building, so the square-foot price must be high enough to entice even the owners of the most lavish units with the best views.

His article concludes:

The most effective approach is for the developer to work very closely with the association’s board of directors in order to get all of the pertinent information into the hands of every owner at the property. Meetings with the owners to answer all of their questions and allay any of their concerns are also a priority.

The contracts that are presented to all of the owners will be identical, except of course for their corresponding unit number, owner’s name and purchase price based on the square footage. There are no financing contingencies or property inspections required, but they do include contingency clauses indicating the required critical mass of units that must accept in order for the offers to be valid. They also include extension clauses to enable the developer to extend the deadline in case of litigation or other delays due to some of the logistics of the condo termination process.

In many cases, the only negotiations that take place with some of the individual owners involve their requests to remain in their residences and pay rent to the developer for a number of months after the closing. Developers should remain flexible in accommodating these requests, as typically they will not be able to begin the teardown of the property for months after the closings while other aspects of the condo termination and development processes are underway.

Our firm congratulates Oscar for sharing his insights into this important and timely topic for real estate developers with the readers of the Daily Business Review. Click here to read the complete article in the newspaper’s website (registration required).

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A recent ruling involving a lawsuit by Wells Fargo Bank against the former ownership group of the Palm Beach Mall is emblematic of the post-recession efforts of lenders to recover damages from their commercial real estate borrowers. The convoluted case included several counts alleging various types of damages against the former owners and operators of the mall, but the lender lost on all of its counts and motions in both the trial and appellate courts. While it ultimately may not have impacted the outcome, a couple of seemingly minor mistakes and omissions in the guaranty and loan agreements created significant difficulties for the lender that it was unable to overcome in court.

The recent opinion by the Fourth District Court of Appeal in the case of Wells Fargo Bank v. Palm Beach Mall et al. affirmed the lower court’s decision in favor of the mall’s former ownership group on all counts. The lender had alleged that the mall owners breached the loan agreement by engaging in gross negligence or willful misconduct in its management and also by failing to maintain its status as a “special purpose entity” by not remaining solvent and by paying its liabilities and expenses from sources other than its own funds and assets. It sought to recover the entire outstanding amount of debt owed by the former owner, which had defaulted on its loan and issued the deed for the property to the lender in order to avoid foreclosure.

The appellate panel found that the trial court correctly applied New York contract law, on which the loan agreement was based, when it interpreted the language in the loan agreement to mean that the mall owner would be liable only if it performed deliberate acts beyond acting out of its own economic self-interest. The opinion holds that the owners did not act with reckless indifference to the rights of lender, which is the standard that must be applied under New York law for a finding of gross negligence under an exculpatory clause.

PBM.JPGAs to the issue of the owner’s insolvency, because the loan agreement failed to define “solvent” or “insolvent” the appellate court ruled that the trial court was correct in rejecting Wells Fargo’s balance-sheet insolvency definition (i.e., a company’s assets exceed its liabilities) in favor of the New York common law equity insolvency definition (i.e., the inability to pay debts and obligations as they become due in the regular course of business) in its interpretation of the loan agreement. Therefore, the mall owner did not breach the “special purpose entity” covenant in the agreement, as it was paying its liabilities and expenses as they came due and correctly using capital contributions from a member of the ownership group to make the loan payments and meet its operating expenses.

The appellate court also was not swayed by the lender’s argument that the trial court erred in refusing to treat the “single purpose entity” language, which was used once in the guaranty agreement, as “special purpose entity,” which was used throughout the loan agreement, or to reform the guaranty agreement accordingly. The appellate panel found that the trial court correctly pointed out that Wells Fargo, as an assignee of the original loan, was not party to the negotiations which gave rise to the loan documents, and as such it was not in a position to argue whether or not the use of “single” rather than “special” in this instance was intentional or not.

While it may not have changed the ultimate outcome in the case, it does appear that the use of the word “single” in the clause in question was likely a mistake in the guaranty agreement that should have been detected and corrected by the original lender prior to execution of the agreement, thereby ensuring that the term “special purpose entity” was used consistently throughout all of the loan documents, including in the guaranty agreement. In addition, the lack of a reference for the specific definition of insolvency as well as the standard for gross negligence that were to be applied under the loan agreement were errors of omission.

These errors and omissions in the guaranty agreement and the loan agreement proved to be very problematic for the eventual assignee of the original loan, and they illustrate the importance of making these documents involving large commercial real estate loans as specific and comprehensive as possible.

A report earlier this week in the Tampa Bay Times about the brisk pace of sales at the new One St. Petersburg luxury condominium illustrated the changes that are taking place in the city’s downtown area. The article reported that buyers at the new development, which at 41 stories will be the tallest building in the city, have reserved 104 of the 253 units since they were introduced a few months ago, totaling more than $106 million in sales.

Located at First Street and First Avenue N., the new tower is attracting residents with its prime location near the downtown waterfront and its many restaurants and shops. Other nearby offerings, including the Salvador and Bliss condo towers, are also enjoying strong presales.

As this article shows, condominium development in areas outside of South Florida has joined the pace of what we’ve seen in the South Florida market. Below is an artist rendering of the new towers flanked by two neighboring buildings, and the complete article can be found by clicking here.

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New condominium developments often face significant challenges from municipalities and neighboring property owners. As the wave of condo development in Florida appears to have no end in sight, developers should be cognizant of potential complaints that may be raised against their proposed towers, and they should be prepared to negotiate to win all of the necessary approvals and overcome the challenges that are presented.

The struggles facing the new Bliss 18-story luxury condo tower planned for downtown St. Petersburg are emblematic of the types of hurdles that some new projects must overcome. An article earlier this week in the Tampa Bay Times chronicles the difficult road that the development has been forced to navigate. The challenges include allegations by a nearby property owner that the project violates the city’s comprehensive land-use plan as well as a lawsuit by the association of a neighboring condominium claiming that cars waiting to use the project’s planned elevator to transport vehicles to their parking spaces would clog the access alley also used by the condominium and create a safety hazard.

Click here to read the newspaper article and learn about the developer’s concessions to address and overcome these obstacles. Below is an artist rendering of the proposed tower.

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The recent article from The Miami Herald that also appeared in other Florida newspapers about the plans for the new Brickell City Centre near downtown Miami focused on the developer’s innovative approach to creating an open-air shopping center that will keep visitors cool and comfortable during hot or rainy days. With the help of a Paris design firm and the universities of Carnegie-Mellon in Pittsburgh and Cardiff in the U.K., Swire Properties is creating an undulating canopy comprised of steel, glass and massive fabric-covered louvers that will cover the open concourses of shops, which will extend across four city blocks.

The article reads:

Swire officials also say the ribbon, now being installed at the rapidly rising Brickell City Centre, also makes a big statement about the luxury project’s focus on marrying energy efficiency and environmental sustainability with cool design (pun intended). The entire five-million-square-foot project, which in addition to the shopping center consists of two office towers, a high-rise hotel and two condo towers — one of which was topped off Friday — is designed for LEED certification for neighborhood development, as well as LEED gold for some of the individual towers, an ambitious goal.

Click here to read the complete article about this new retail development (rendering pictured below), which deserves to be applauded for its innovative and eco-friendly approach to creating a comfortable and inviting environment for its future shoppers.

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Oscar Rivera 2014.jpgThe firm’s Oscar Rivera contributed a guest column that appeared in today’s edition of the Daily Business Review about the instability in the real estate and insurance industries that will be caused by the failure of the U.S. Senate to reinstate the Terrorism Risk Insurance Act. Our firm congratulates Oscar for drawing attention to this vital legislation and calling on the Congress to make it a priority when it reconvenes in January.

Oscar’s article reads:

In a move that caught many of those in the real estate and insurance industries by surprise, the U.S. Senate adjourned Dec. 16 without a vote on a bill to extend the Terrorism Risk Insurance Act for six years. The program will now expire Dec. 31, and the negative repercussions for the real estate industry are expected to be significant.

The TRIA program has served as the backstop for insurance companies’ losses from acts of terrorism ever since it was ratified with widespread bipartisan support after the 9/11 terrorist attacks, which caused the private market for terrorism insurance to collapse.

Once the program is allowed to lapse at the end of the year for the first time since its inception, insurers will have the right to cancel terrorism policies. Insurance industry analysts believe that is exactly what many of the carriers will do, as they would be at risk of insolvency without the government backup if a massive terrorist attack were to take place.

Under the TRIA law, the federal government covers 85 percent of all losses after the first $100 million in damages from a terrorist attack. Thankfully, the government has never had to pay out to the insurers under the law, but unfortunately the need for this type of insurance is as strong today as it was when the program was enacted in 2002.

The reauthorization bill would have renewed the program for six years and decreased the government’s exposure by gradually increasing the threshold to $200 million in losses before the federal funds are allocated. In addition, the government’s share of the catastrophic losses would have been gradually lowered to 80 percent.

U.S. Sen. Charles Schumer, D-N.Y., who negotiated the current reauthorization bill in the Senate and helped to get the original law ratified in 2002, has said that billions of dollars in new real estate developments and hundreds of thousands of jobs are at risk due to the expiration of TRIA.

Insurance and real estate industry analysts tend to agree, as terrorism insurance coverage is required for practically all of types of loans and financing options that are available for major real estate developments such as shopping centers, office towers, residential towers, stadiums, arenas and public sector infrastructure projects. Indeed, once the program lapses and insurers begin to cancel these policies, the loans for these projects that lose their terrorism coverage will be in technical default.

The instability that the loss of the TRIA coverage is going to cause in the insurance and real estate industries will be significant. When the U.S. Congress reconvenes Jan. 6, it should make the reinstatement of this insurance program one of its foremost priorities.

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Jeff Vinik, owner of the Tampa Bay Lightning, has plans to turn vacant land and other underused property across a portion of downtown Tampa into a thriving urban core. An entity controlled by Vinik has purchased various sites surrounding the Amalie Arena, home to the Lightning, with a goal of adding hotel, office, residential and retail space to the area as well as a new medical school for the University of South Florida. The project, which could exceed the billion-dollar mark, would progress over the next five to ten years.

 

Click here to read an article and watch a video on Vinik’s plans from the Tampa Bay Times. Below is an artist’s rendering of a part of the planned development.

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Much has been made of the real estate and housing trend of “New Urbanism” and its calls for compact and walkable mixed-use neighborhoods with a range of housing types as well as retail and offices. The model has proven to be successful, especially for areas that are undergoing a gentrification process with a variety of new real estate development attracting new residents and businesses. Now, we are seeing a growing number of real estate developers catching on to the trend by launching small yet visionary projects in neighborhoods that are undergoing such a metamorphosis.

One example that caught my eye was written about in an article last week in The Tampa Bay Business Journal. The report was on real estate developer Wesley Burdette and his plans to convert an old warehouse in the Seminole Heights neighborhood of Tampa into 46 loft-style apartments ranging in size from 475 to 1,224 square feet. tbbj1.jpg Dubbed “The Warehouse Lofts,” the project is said to cost $5.5 to $6 million and completion is set for September 2015, and in my estimation it appears to epitomize the type of smaller projects that are being taken on by visionary new residential developers as many neighborhoods throughout Florida undergo significant changes.

The article reads:

“Smaller projects like the Warehouse Lofts can help create the type of urban density that most neighborhoods in Tampa lack. It’s typically entrepreneurial developers like Burdette, whose day job is in mortgage banking, who pursue them.

That’s because those projects are usually more challenging and less profitable than the large-scale multifamily projects that attract institutional investors.

Burdette said he’s seeing more and more residential interest in Seminole Heights, from people who come to the neighborhood for the bars and restaurants that have popped up in recent years.”

The article goes on to discuss how Burdette intends to keep the main structure and include a Zen garden, a three-story atrium and designated restaurant or retail space on the first floor. He is also “planning to use locally salvaged materials in the redevelopment — wood, metal, concrete and other architectural details.”

The article concludes by indicating that Burdette believes the apartments will attract Millennials who prefer to rent. Click here to read the complete article.

Our firm’s other real estate attorneys and I applaud new residential developers such as Burdette who appear to have the entrepreneurial vision to bring novel projects to the market that have a great deal of potential for success. We write about Florida real estate trends as well as legal and business issues in this blog on a regular basis, and we encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to receive all of our future articles.

Steve Siegfried 2013 srhl-law.jpgSteven M. Siegfried, our firm’s founding partner, was quoted in an article in the September 24 edition of the Daily Business Review about the impact of a new federal law to eliminate registration requirements for new condominium and timeshare developments under the Interstate Land Sales Full Disclosure Act.

The article reads:

A bill headed to President Barack Obama’s desk could be a “major victory” for condominium developers and save them millions of dollars in rescinded deposits from clients with buyer’s remorse.

The proposed S.2101 would amend the Interstate Land Sales Full Disclosure Act, which was used by some depositors as a tool to escape regrettable real estate contracts after the market crashed.

Developers and their attorneys are applauding the legislation, saying the [ILSA] law’s stringent technical requirements give buyers a green light to spot reporting loopholes and recoup deposits on condo contracts.

. . . Florida developers have been prime targets under ILSA. State regulations allow them to launch condo sales well before projects break ground, which means developers rely on renderings and forward-looking statements when marketing pre-construction projects.

But that practice cost them in court when judges interpreted the law in favor of “definitive” descriptions in sales and prospectus documents.

“The word ‘anticipate’ was not definitive enough, so there were lots of cases,” said Steve Siegfried, shareholder at Siegfried, Rivera, Hyman, Lerner, De La Torre, Mars & Sobel. “The courts were interpreting the basic requirements very, very strictly in a manner that almost gave the buyers an opportunity to find some technical reason why there was a noncompliance.”

“The statute is so extensive that attorneys were looking for very questionable errors, and basically arguing that any minor error in the property report allows them to rescind the contract,” added Siegfried, adjunct construction law professor at the University of Miami School of Law. “It was so technical, it became almost abusive and really caused a lot of problems for developers.”

Click here to read the complete article in the Daily Business Review’s website (registration required).

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The latest reports from the federal government illustrate that the housing market is back on the rise after two months of decline. The U.S. Commerce Department logged a 15.7 percent increase in July in home construction nationwide, following declines of 4 percent in June and 7.4 percent in May. A summary of all of the findings and statistics in a report from the Associated Press can be found by clicking here, and some of the highlights include:

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“The July rebound reflected strength in single-family home construction, which rose 8.3 percent, and in apartment construction, which was up 33 percent.

“. . . Housing construction was up 29 percent in the South, recovering from a 26.8 percent plunge the month before that was blamed in part on heavy rains

“. . . Economists noted that the July performance was much better than expected. Sal Guatieri, senior economist at BMO Capital Markets, said solid job growth and a recent decline in mortgage rates were helping boost construction.

“. . . A report Monday indicated home builders are feeling more confident about their sales prospects, a hopeful sign that home construction and sales of newly built homes could pick up after stalling. Builders’ views of current sales conditions for single-family homes, their outlook for sales over the next six months and traffic by prospective buyers all increased in August.”

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These figures and findings reinforce what our firm’s real estate attorneys and clients have been seeing throughout Florida: The housing market is solidifying its rebound from the foreclosure crisis in the state, and here as well as in other states the surfeit distressed properties are being brought back into the marketplace.

Our other real estate attorneys and I monitor and write about important business and legal issues affecting the industry in this blog, and we encourage industry followers to enter their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.