ORLANDO, Fla. — Condo owners in the Element at MetroWest say they now face one of their worst fears: Their west Orlando condominium is reverting to apartments, and they may be forced to sell their units to the property’s new owner for far less than what they paid for them several years ago.
Orlando real estate agent Yadira Bello paid $178,900 for her one-bedroom condo in the gated, manicured community at the peak of the market in 2007 — shortly after developers converted it from an apartment complex into a condominium with the goal of reselling units to buyers such as her. But the home market slumped, few units sold and, in April, a group of California-based investors paid about $11 million for the common areas and more than 200 units in the 328-unit complex.
Two months after it bought the bulk of the Element, Karlin Real Estate moved to dissolve the condominium association. It has also purchased dozens of remaining units, each for a fraction of the price that Bello and others paid for theirs. “I have a mortgage on it,” Bello said. “It’s going to be impossible for them to offer me the money I owe.”
Condo-to-apartment conversions are a rare but emerging phenomenon in the Orlando area, which in 2005 led the country in the number of apartment-to-condominium conversions. In the six years since then, the median condo price in the four-county metropolitan area has plummeted from $171,100 to $50,400, according to Florida Realtors.
The plunge in prices and stalled sales spurred state lawmakers to make it easier for majority owners of condo communities to convert them into apartment complexes, which are increasingly popular and recording their highest occupancy rates in years.
“What the Legislature has done over the last four or five years, they built into the statutes to make it easier to terminate the condominium than it was previously, in part because many were damaged in the hurricanes, and then (because of) the issues with the decline of the real estate market,” said Maitland, Fla., lawyer Scott Newsom
The big question swirling among residents of the Element and condominiums elsewhere is whether owners such as Bello can be forced to sell their units and move.
Under Florida law, the majority ownership of a condominium — such as Karlin Real Estate in the Element’s case — can dissolve the condo association and do one of two things: give owners of the remaining units a percentage share of the newly converted apartment complex in exchange for their condos or buy the remaining units from those owners for fair-market value.
So the Element’s new owners could, for instance, give Bello a small interest in the apartment project in exchange for her unit or could, based on an appraisal, pay her $70,000 for the unit.
Either way, she would no longer own her condo and would have to move.
“Yes, they would be forced out,” said Newsom, of the law firm Katzman, Garfinkel & Berger, which represents homeowner associations.
At the Element, Bello said even if the new complex owners could pay her enough to cover her outstanding mortgage, she doesn’t want to leave. “I bought this to live here, and I don’t want to move. It’s a unique unit,” Bello said. “When you buy something, you buy it because you like the space; you like the area; you like the view. I don’t want to change it. I don’t want to live in another property.”
Unit owners can derail a condo-to-apartment takeover if owners of 10 percent of the units object. So far, 29 owners of Element units have filed a protest — about five short of the 10 percent required by state law. The matter is expected to be decided by the courts.
Minnesota resident Jon Brandt is organizing Element owners to oppose what he calls a “corporate takeover” of the remaining units.
“They could eventually force us out and, in the meantime, they could restrict access to common areas and continue to impose fees for association dues,” Brandt said. “There’s no end to the leverage they have. A corporate takeover is so abusive to minority rights.”
The company in charge of property management at the Element, Michigan-based McKinley Inc., is working with unit owners and their lenders to pay fair-market value for the units and resolve outstanding mortgages. The company is also helping relocate former unit owners to similar properties nearby, said Albert M. Berriz, McKinley’s chief executive officer. He said his company was able to help complete a similar condo-to-apartment conversion at Waldengreen Apartments in south Orlando.
“The fair-market value is less than they paid at the time, but they will get to buy at lower values, too,” Berriz said. “We spend a lot of time hand-holding each case. You have to deal with their bank, too. We’ll sit there till we make people comfortable and put them in an equal spot.”
Most of the remaining owners at the Element, he added, are investors; very few owner-occupants would have to leave their homes. Berriz said his company is also working with condo renters at the Element to ensure they can remain in units being sold and converted back to apartments.
CB Richard Ellis multifamily specialist Shelton Granade, who worked on the sale of the Element earlier this year, said he expects to see the dissolution of more condominiums as buyers of fractured condo deals try to sort out what to do with the properties.
Condo terminations can be a somewhat risky process, he said, but ultimately they put the property back into the hands of a single company responsible for maintaining it.
“Generally speaking, condo associations are so upside down, or in such disarray, that it ends up being financially better if someone can bring stability to the deal and bring them back into good condition,” he said.