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Articles Posted in Real Estate Development

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. “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.”

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.

Michael Hyman srhl-law.jpgFirm shareholder Michael L. Hyman was quoted in an article that appeared on Thursday, June 12, 2014, in The Real Deal ( about the latest court decision in the dispute between two homeowners associations and developer of the Privé condominium towers in Aventura. The decision in Miami-Dade Circuit Court granted a request by the homeowners associations to abate the case until issues raised by the City of Aventura are resolved, effectively delaying for 90 days the hearing that will decide whether the lawsuits filed by the associations to block the development can move forward.

Hyman represents the Williams Island Property Owners Association, and he successfully demonstrated to the court that the case should not proceed as the City of Aventura had not yet approved a building permit for a sidewalk on an adjacent south island – which is a requirement for the issuance of a building permit pursuant to a variance issued by the city when the first island was developed with single family homes. Judge Jerald Bagley granted Hyman’s motion and ordered the case stay for 90 days, after which both sides must report back to the court on the status of the sidewalk permit.

Hyman explains in the article that the association’s motion “was based upon the fact that if the city would not issue the sidewalk permit, the matter could be resolved without the necessity of Williams Island proceeding forward with its lawsuit.” He noted that the stay would be lifted if the city issues the permit within the 90-day period.

The Williams Island association and the Island Estates Homeowners Association separately filed lawsuits in 2013 challenging the development rights for Privé, which is planned as a pair of 16-story condominium towers with 160 units by developer BH3 and Gary Cohen, the developer of the Island Estates enclave in the south island of the two-island property.

Click here to read the complete article from The Real Deal.

Jeffrey Respler srhl-law.jpgThe firm’s lawsuits alleging major construction defects against the developer, general contractor, architect and engineers behind Miami’s Quantum on the Bay condominium towers were the subject of an article by the Daily Business Review that appeared in the June 16, 2014, edition of the newspaper. The lawsuits allege that the defendants’ work resulted in hundreds of defects, including stucco and HVAC problems as well as inadequate drainage that has led to severe flooding in the community’s fitness center and loading dock.

Firm Partner Jeffrey S. Respler is quoted in the article indicating that “[t]he unit owners want to have the property that should have been delivered to them. At the end of the day, we’re not looking for a windfall. We’re only looking to be made whole.”

The lawsuit names as defendants developer Terra ADI-International Bayshore LLC, builder Facchina-McGaughan LLC, architect Nichols Brosch Wurst Wolfe & Associates Inc., contractor Fred McGilvray Inc., and engineers Florida Engineering Services Inc., VSN Engineering Inc., Gopman Consulting Engineers Inc. and John J. Kirlin LLC, a Maryland-based firm that specializes in plumbing, heating, ventilation and air conditioning.

“The biggest problem is whenever there’s even a minor rain event, there’s flooding,” explains Respler in the report. “Every single day, the association people have to go out and pump the drainage wells in this luxury development. If not, there’s flooding – even when there’s no rain.”

The article describes how sandbags are being used at the property to keep water out of a service area during storms, and residents have been forced to have repairs made to swamped elevators.

Respler concludes: “The parties who we know are responsible are pointing fingers at each other. We are just the end users. We weren’t there when it was being built. The bottom-line fix is we’re probably going to have to move the drains to the front of the property. The speculation is the building was built too low.”

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

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Banks are lending money. Developers are building new condominiums. And yet occasionally we are reminded of the turmoil that arose following the bursting of the housing bubble. A recent Florida Supreme Court decision regarding escrow accounts is one such reminder.

In North Carillon, LLC v. CRC 603, LLC, Case No. SC 12-75 (January 23, 2014), the Court addressed the issue of whether a condominium developer is required under the Florida Statutes to have separate escrow accounts for certain funds held in escrow pursuant to unit purchase agreements. Subsection 718.202(1), F.S., requires developers to “pay into an escrow account all payments up to 10 percent of the sale price . . . .” Subsection 718.202(2), F.S., provides that “payments which are in excess of the 10 percent of the sale price described in subsection (1) and which have been received prior to completion of construction by the developer . . . shall be held in a special escrow account established as provided in subsection (1) . . . .” What has been in question is whether the account required under subsection (2) must be separate from that required under subsection (1), requiring developers to have two different accounts for each buyer who paid into escrow more than 10 percent of the sale price.

The Third District Court of Appeal had decided the case in favor of two separate accounts in its decision in CRC 603, LLC v. North Carillon, LLC, 77 So.3d 655 (Fla. 3d DCA 2011). That court had followed the United States District Court for the Southern District of Florida in Double AA International Investment Group, Inc. v. Swire Pacific Holdings, Inc., 674 F. Supp. 2d 1344 (S.D. Fla. 2009) and found that without two separate accounts, a buyer’s purchase contract was voidable by the buyer. Since many developers believed in good faith that only one account was required, these decisions contributed to what was already a rising tide of litigation following the market downturn.

FSCourt2.jpgIn the recent decision, the Florida Supreme Court disagreed with the other courts, determining that the language in question was ambiguous. It also examined statutory history but remained unable to resolve the issue based on the statutory text.

Ultimately, because Subsection 718.202(7), F.S., provides that a willful violation of the statute by a developer is a third degree felony, the Court applied the rule of lenity to the case. The rule of lenity provides that ambiguity be construed in favor of the party who would be the accused in a criminal proceeding so as to avoid a harsher penalty than what was intended. Because it was not clear that a developer need maintain two separate accounts to avoid charges of a third degree felony, the Court found that the developer could maintain all funds in one escrow account.

As the courts resolve these remaining issues from the market downturn, we will continue to monitor all of the important rulings and discuss their impact for the real estate industry in this blog. We encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

We are sometimes engaged to close loans on behalf of entities providing financing for individuals or projects. Often, there are a number of parties participating in the loans. In other words, different parties are pooling different sums to come up with the total amount of the loan. In these scenarios, it is essential that the relationships among all of the participants be properly and clearly documented.

Most established lenders use form participation agreements. When several friends come together to pool resources and lend money , that is often where we see a lack of documentation which can have unintended and often ugly consequences. We are often amazed when we are asked to foreclose on loans that we have not closed, and we find that the participation and the rights of the different parties providing the loan are not properly documented.

A participation agreement among all participants should be drafted by loan counsel and executed by all participants well before the closing of the loan. warranties and reps.jpg Key elements of the participation agreement are the naming of an “agent” to act on behalf of the participants, and the establishment of the rights and responsibilities of the agent and the participants. Generally, the agent is responsible for the management of the loan and the disbursement and collection of all funds on behalf of the participants. A lengthy list of the agent’s obligations and limitations is generally the linchpin of the agreement.

The agent is generally responsible for collection of the proceeds from all of the participants prior to the loan closing; coordinating the closing of the loan; managing and servicing the loan after closing; collecting all funds and making all disbursements to the participants during the loan process; managing compliance with the loan documents; enforcing the loan covenants and satisfying the loan upon payment.

The agent is generally compensated by retaining a percentage of the interest collected or earning a pre-established fee equal to a percentage of the outstanding principal of the loan, on a per annum basis. Sometimes the agent is compensated with a flat one-time fee for acting as agent and servicing the loan for the participants. The agent’s fee is a critical element of the transaction, and it should be properly documented so as to avoid any misunderstanding among the participants.

Our other real estate attorneys and I have a great deal of experience with these and other types of financing structures, and we write regularly in this blog about important business and legal issues for the commercial/industrial real estate industry in Florida. We encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

A Florida court recently reminded developers that even if they reserve rights to amend a declaration, they must exercise these rights in a reasonable manner or reserve rights with specificity in the original document. In Flescher v. Oak Run Associates, Ltd., Case Nos. 5D12-2575 & 5D12-3254, the Fifth District Court of Appeal noted the limitations on these rights of the developer. In that case, the developer had recorded declarations of covenants in multiple single-family home neighborhoods, each declaration following a similar form. The original declarations provided that the developer, as the declarant, would use assessments collected from homeowners for various expenses, including landscaping, utilities, garbage collection and various other items.

The developer, which had the right to amend each declaration in its sole and absolute discretion, later amended all of the declarations to remove the text that required assessments to be used for these specific expenses. The amendment did not preclude the developer from using assessments for those costs, but under the terms of the amendment such use would no longer be a requirement. As a result of this and other changes made to the declarations, some of the homeowners sued. They obtained mixed results in the lower court.

5DCA Court House.JPGThe appellate court found that although the developer had the right to amend the declarations, the amendments had to be reasonable and could not change the general plan under which the community operated. The exception to this rule would be if the original declarations had warned homeowners that the burdens on the community could be changed by unilateral amendment by the developer.

The court found that the removal of the obligation to use assessments for the items mentioned above effectively moved the burden from the developer to the homeowners. Although the amendments did not specifically provide as such, the amendments allowed the developer to continue to collect assessments in the same manner, eliminated its obligation to pay for these expenses, and allowed it to keep any funds remaining after payment of expenses which remained developer obligations. The court found the shift in responsibility to be an unreasonable use of the developer’s right to amend the declarations.

This decision is not yet final, so it will be interesting to see if there are any further developments in this case. In any event, it is an important reminder to developers that even with a right to amend their documents, they must act in a reasonable manner. If a developer desires to retain a specific right to change a term in a declaration, that right should be specifically addressed in the original document so that purchasers are on notice that the term is subject to change. Without such specificity, changes will not be permitted if they change the character of the development or the burdens on the homeowners.

Our other real estate attorneys and I will continue to monitor and write about this case and other important legal and business issues for the Florida real estate industry in this blog. We encourage industry followers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

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