Saturday, September 24, 2022

Closings in Hurricane Season


Anyone who has a closing on a Florida property next week is probably going to be delayed unless they can close with no insurance. Citizens and most other Florida property insurers will not bind a new policy when a named storm is within "the box" which is approximately the entire area shown above or when we have a tropical storm watch or warning. The box is simply a  huge area of the map in which no named storm can exist at the time of binding a new policy. As of this morning, we have a storm, Ian, in the central Caribbean and as of this writing is just south of the box but will be in it momentarily. The map displayed is not exact but a close approximation of the "box". Any Florida closing scheduled for next week that involves a new policy for property insurance is likely not going to happen even if the storm is hitting Louisiana and not directly impacting or threatening us. Make plans accordingly.

"Why take by force what the gullible and guileless will volunteer?" _Sal Bayat

Saturday, September 03, 2022

Consider the Bunny

This market isn't finished yet despite the tripling of inventory since spring. This morning of the second attempt to fly the Artemis 1 mission to the moon, there are 114 existing condos and townhomes for sale in Cocoa Beach and Cape Canaveral plus another four pre-construction offerings. There are 31 single family homes for sale with only one asking less than $525,000.

In the month of August 63 MLS-listed condo and townhome units closed with a median selling price of just over $400,000. Over half of the sold units commanded over $300 per square foot. A couple of years ago only the very nicest direct ocean units were selling for more than $300/sf. In August ten units in buildings not even on the ocean and without garages closed for more than $300/sf. Over half of the condo sales were cash deals and weekly rental units were still closing at the top of the $/sf range. Twenty five units sold in seven days or less with six of them selling before hitting the market. Highest price sale of the month was $1,200,000 for a 4th floor, 15 year old 3/2 beauty at The Meridian in north Cocoa Beach. Lowest price was $165,000 for a clean little, 56 year old, 2nd floor 1/1 in Cape Canaveral a couple of blocks from the ocean.

There were 15 single family homes closed in Cocoa Beach in August and two in Cape Canaveral. Five of the sold houses closed at prices above one million. The starting price for a fixer-upper, non-waterfront house is now about $500,000 thanks to AirBnB mania. The idea of making big money renting to vacationers is fueling demand for the 50+ year old houses close to the beach and is causing problems in our once-peaceful neighborhoods. The City of Cocoa Beach has been discussing new fees and penalties for noise complaints from the growing number of single family vacation rentals. They are a little tardy on taking action but the measures they are discussing will hopefully help preserve the family nature of our neighborhoods.

Hopefully we'll get to see the Artemis mission fly today after many delays and issues with the vehicle. Labor Day weekend is traditionally one of the busiest weekends of the year here but today will probably break all previous records with hundreds of thousands of people coming to see the launch added to the NKF surf contest crowd and passengers coming and going from four cruise ships in port. Yours truly will be hunkered down for the duration. Enjoy the beautiful weather and expect mind-numbing traffic.

"Consider the example of the monkey -- who, the higher he climbs, the more he shows his behind." _St. Bonaventure, the 13th-century Franciscan philosopher speaking about power and wealth

Sunday, August 14, 2022

The Clock is Ticking

Condo owners take notice. The first deadline required by the new Florida condo legislation is less than five months away on Jan. 1, 2023. Condo associations with buildings of three stories or more must file a report with the State by the end of this year. This new mandatory report is simple and can be done online. The registration form can be found here. The required information on the form is listed below.

718.501(3)(a), F.S./Senate Bill SB4D requires all condominium and cooperative associations with buildings 3 stories or higher to report the following information to the Division of Florida Condominium, Timeshares and Mobile Homes on or before January 1, 2023.

  • The number of buildings on the condominium property that are three (3) stories or higher in height.
  • The total number of units in all such buildings
  • The addresses of all such buildings.
  • The counties in which all such buildings are located.

The next deadline for the association is Jan. 1, 2024 by which time the milestone inspection and structural integrity reserve study must be completed. Considering that there are a limited number of engineers and architects who can perform the milestone structural study, it would be prudent for associations to be making steps now to arrange and schedule the inspections. Once inspections have been done, a structural integrity reserve study must be done. The amount being contributed to the structural integrity reserves can't be an arbitrary amount as many associations in our area do for the traditional reserves but must be 100% of the estimated repair costs by the time of the expected repairs. This reserve study will best be done by a specialist in reserve studies.

Compliance is mandatory and, as specifically spelled out in the Statute, Board members may be considered to have violated their fiduciary duty if the association does not comply. I have heard an opinion from a Florida condo association attorney that condos whose by-laws limit fee increases above a certain amount or percentage will likely not be protected should they use this as an excuse to not raise the fees enough to fully fund the structural integrity reserves. The same attorney opined that, as written, the law might be interpreted to include buildings of less than three stories to be required to maintain 100% funded structural reserves even though they are not required to do a milestone inspection or structural reserve study. The law as written is hazy but it would be prudent for owners in buildings less than three stories to consider beginning to reserve for upcoming concrete and other structural maintenance. The days of shoestring monthly fees offset by big special assessments for repairs not included in the budget are coming to an end. It is the new paradigm for Florida condos and the bottom line is that by 2025, monthly fees should be closer to what is actually needed to maintain a condo building. I'll repeat what I've been saying for a while now, condo fees are going up and in many cases are going up substantially. 

Sellers of condo units are going to be required to furnish copies of the milestone inspections and structural integrity reserve study to buyers or, in lieu of, written notice that the association has not done them yet. I think it's reasonable to expect the new transparency about condition and higher fees to cool demand for condos. A substantial pull-back from current prices to reflect the increased carrying costs of condos would be a rational response to the new reality. Sellers who wait until the reserve study quantifies the additional reserve amounts will have waited too long. Anyone thinking of selling would be well-advised to consider doing it prior to the reserve study.

Buyers should pay close attention to the financials of condos they are considering and since none have done their newly required inspections and reserve studies yet, the physical appearance and condition of the building. New buyers of condos should expect today's fees, whatever they may be, to increase by the Jan. 1, 2025 deadline. There is no reason to be surprised by a big increase in fees by then. It's coming and just a matter of time.

"If we want something enough, our tolerance for risk goes up fast. When it’s midnight at the airport, you’ve been on the road for a week, and the line for licensed taxis home is 40 minutes long, the driver hanging around baggage claim looks increasingly trustworthy. Desire offers rationalizations instead of rationality:" __Prof Galloway

Sunday, July 24, 2022

Inventory Tsunami

Spotted this gopher tortoise cruising along the dune line at Cape Winds a few years ago. The variety of wildlife that lives in the narrow strip of dune between the beach and the buildings is surprising. We have a healthy population of swamp rabbits, black racers, corn snakes, tortoises, possums, racoons and the occasional bobcat and coyote squeaking out a life in that narrow strip.

Residential inventory is exploding in Cocoa Beach and Cape Canaveral. The number of existing condos for sale is up 50% since mid-May while the number of single-family homes on offer has more than doubled during the same period. As recently as April there were only 43 condo units and 12 single family homes for sale. The numbers this morning are 101 MLS-listed, existing condo units and 27 single family homes.

Thirty units have closed in the two cities since July 1 at prices between $2 MM and $125,000. Another 46 have accepted an offer since the month began. I would expect the inventory to continue growing as sales activity typically begins to slow as we approach the start of the new school year. Sellers are still pricing optimistically but I am seeing more price reductions as some of them respond to the reality check of an apathetic market. Over 40% of the existing listings have reduced their original asking price. Just a few months ago most new listings were enjoying multiple offers with many selling over asking price. Of the thirty closed units so far this month nineteen of the thirty sold for less than asking price. Sellers, take note; the market is different than it was two months ago and the new reality is more competition, fewer buyers and tighter conditions for condo loans. With the busy months of hurricane season fast approaching, the time to play chicken with the market is behind us. Anyone hoping to sell a residential property here would be well-advised to accept the market changes and make a plan to sell that works with the new reality. The strategy that worked well earlier this year when there was less inventory, lower interest rates and a less-stringent condo mortgage questionnaire is not the best plan moving forward. 

Buyers, enjoy your new status in the buy and sell dynamic. Those planning to get a mortgage need to understand what will make a condo complex fail the new mortgage condo questionnaire before they offer on a unit. If the complex is older with obvious deferred maintenance or it is primarily vacation rental units, a mortgage may be impossible. An experienced buyer's agent will have a good idea which ones those are.

"Bad artists always admire each other's work..."--Oscar Wilde

Sunday, July 17, 2022

New Reserve Requirements for Condo$

The anticipated changes addressing condo safety are now law. I have inserted the most impactful parts of the new law that will affect condo fees substantially in many buildings. The TL;DR summary: Procrastination regarding structural maintenance and funding of same is no longer an option for pennywise, pound foolish associations.

Condominium buildings 3 or more stories will now be required to have a “Milestone Inspection” within 30 years from date of occupancy, or, if the building is within 3 miles of the coastline (this covers all of Cocoa Beach), the inspection must occur within 25 years, and afterwards every 10 years. Existing condominiums built before July 1, 1992, will need to complete the initial milestone inspection by December 31, 2024

Phase 1 inspection requires the architect or engineer to perform a visual inspection of the properly and make an assessment of the building’s condition. If the phase 1 inspection reveals no signs of structural deterioration, then a phase 2 inspection is not required. A phase 2 inspection is required if structural deterioration is noted, the phase 2 inspection may require destructive testing.

In addition to the association, the inspector's report must also be delivered to the local building official. The association must distribute a copy of the inspector-prepared summary to each unit owner regardless of the findings or recommendations in the report. Any repairs for structural deterioration must be commenced within 365 days after receiving such report or earlier as required by local authorities.

The required “Structural integrity reserve study” is the fly in the ointment for condo fees. For some well-maintained and newer buildings it will have little effect on fees but for buildings with deferred concrete repairs, the requirement to begin funding reserves immediately (or by December 31, 2024 )for a project in the near term will blow up monthly fees.

Associations have a little breathing room before December 31, 2024 but if they anticipate that the structural integrity report is going to find needed expensive concrete repairs it would be prudent to go ahead and boost fees by an arbitrary amount immediately to get a head start. I would expect some Boards to wait until the last minute to give some owners time to bail before fees go up. 

Interesting fact: the concrete used in older buildings is not the same as modern concrete. I have learned that concrete formulations began evolving rapidly in the 80s and continue to do so today. Newer buildings in almost all cases were constructed with better concrete than our older buildings especially those built before the 80s. Another issue to consider when looking to purchase a beach condo. Knowledge is power.

"It's hard to accept the truth when the lies were exactly what you wanted to hear." _unknown

Friday, July 08, 2022

Retrograde Burn Initiated

Inventory of existing condos and townhomes in Cocoa Beach and Cape Canaveral stands at 88 units this morning plus another four pre-construction units. Median asking price is $460,000. There are 29 existing single family homes offered with a historically high median asking price of $1,000,000. In addition, there are six yet-to-be-built homes offered for reservation in south Cocoa Beach.

Seven single family homes closed in the month of June at prices between $1,750,000 and $370,000, only one unit for less than $650,000. During the month 58 condos and townhomes closed at prices between $1,217,000 and $128,500 with a median selling price of $330,000.

New contract activity has slowed with only 40 condo units contracted in the last four weeks, over half in the first three weeks on the market. Nine single family homes have found a buyer during the same four week period. One notable statistic has been a shift in activity to lower priced units. Thirty of the 37 units contracted in the period were asking less than the current median asking price of $460,000. That illustrates a pretty wide gap between what's for sale and what's selling. Another shift is the number of buyers using a mortgage to purchase. Historically over half of our condo sales have been for cash. Since June 1, only 40% of condo sales were cash deals. That's surprising considering the rapid increase in mortgage rates this year. We had a welcome pull-back in rates this week with the average 30 yr fixed rate mortgage at 5.672% as of yesterday's survey.

My takeaway and observation is that there is a widening separation between buyers and sellers. Sellers in the higher price range above the median are enjoying less buyer interest except in the case of unique properties. Buyers getting a mortgage are looking at a monthly payment that is about 40% higher today than it would have been last year even after the big pull-back this week. Add in higher prices, condo fees and insurance and the climate for continued appreciation is not favorable. Those who are selling and not getting any activity need to ask themselves if this is a typical pause in a hot market or if something has changed and respond accordingly. What the neighbor got for their property in April may not be a realistic benchmark in a changing market. Buyers may still find themselves in multiple offer scenarios for desirable properties but now have the backstop of increasing inventory and cooling demand. The pressure to pay whatever it takes to win is not as applicable as it was two months ago. Best of luck to those looking to participate. Do your homework, know what's happening now with prices and inventory and adjust your strategy and expectations if the current conditions differ with your earlier expectations.


Told you so - from a post I did in December 2014:

The Cocoa Beach Pier was sold to Westgate Resorts of Orlando who have begun total renovation of the 52 year old landmark. I expect big things and probably a challenge of the height and density limits for a new structure on the parking lot. That will be highly contentious if it happens.

And just reported: 

Cocoa Beach commissioners voted 4-1 Thursday to allow Westgate Resorts to build a six-story resort at Cocoa Beach Pier (above the maximum permitted building height of 45 feet) paving the way for the resort and parking garage off Meade Avenue.

"Against profitability, morality is overmatched." _Jay Busbee about LIV golf

Thursday, June 23, 2022

New Rules for Condos = $$$

The Florida legislature finally approved legislation addressing condo building safety during the recent special session. The draft as approved requires buildings of three or more stories and within three miles of the ocean, which is all of Cocoa Beach, to be visually inspected by the time they are 25 years old and every ten years thereafter by an engineer or architect. If structural deterioration is found during the visual inspection, further inspections to determine whether the building is structurally sound are required. That means buildings completed before 1992, must complete their first inspection by Dec. 31, 2024. Enforcement is expected to be at the County level with oversight by DBPR. 

Beginning Jan. 1, 2025, condo associations will be prohibited from waiving the collection of reserve funds for structural maintenance and repairs which is an item that most condos in our area do not already include in their reserve accounts. The measure also calls for a reserve study every ten years. 

We won't have the exact language until the final bill has been completed and signed into law by the end of this year. Big questions include the percentage of reserves that will be required and how the amount for structural reserves will be determined. Concrete repairs can vary wildly depending on extent at time of repair and where on a building they exist so estimating future costs might require the use of a crystal ball. Even without structural reserves the difference in full or partial reserves can be hundreds of dollars a month in condo fees. Whatever the final language it's safe to expect that single requirement to increase condo fees substantially. 

The ten year period between reserve studies and inspections is already being questioned as not frequent enough to accomplish the intentions. It is a step in the right direction but some professionals suggest inspections and reserve studies every three years as more appropriate in order to maintain realistic reserves. Condo owners in buildings without reserves and that have deferred structural maintenance are about to have a serious reality check on the real cost of oceanfront condo living. A 25 unit building that estimates they will need one million dollars for a concrete project in ten years will need to add $333 per month to each unit's condo fees right now in order to have that million in ten years. Estimating repair costs a decade in advance is guesswork at best as is estimating the extent of the needed repairs ten years out. What is estimated at a million today might turn out to be five million in 2032. Owners of units in older oceanfront buildings should be prepared for meaningful increases in their monthly fees. Inspections, repairs and structural reserves will no longer be optional and they won't be cheap.

The rate of new contracts on condo units in Cocoa Beach and Cape Canaveral has slowed significantly in the last couple of weeks. The rate of accepted contracts so far in June is at about half the rate we enjoyed one month earlier. In addition to sharply higher mortgage rates I imagine the stock market decline may be affecting those cash buyers who would have been selling stocks to fund their condo purchase. Whatever the reason, we are experiencing a slowdown in activity. Whether it persists is anyone's guess.

“Most successful people are just a walking anxiety disorder harnessed for productivity.” __Andrew Wilkinson

Thursday, June 16, 2022

Condo Mortgages Just Got Tougher

Residential real estate activity in Cocoa Beach and Cape Canaveral has slowed somewhat as we've entered our summer season. Twenty condo sellers have accepted a contract since June 1 along with seven sellers of single family homes. Inventory is unchanged from May with 79 condos and townhomes and 17 single family homes for sale this morning. Those numbers do not included 11 pre-construction offerings. The lowest-priced single family home offered in Cape Canaveral is $2.2 MM. It is also the only home currently for sale in that city. Of the 16 Cocoa Beach homes for sale, the lowest asking price is $499,000 and the highest, $1.75 MM.

Closed sales of note so far in June include a beautifully remodeled direct ocean 6th floor Constellation 3/2 with ocean and river views and one of the best floor plans in Cocoa Beach. It sold for $935,000 before hitting the market. Twelve of the 27 sold units so far this month sold in the first seven days on the market. Slightly more than half of these sales were cash deals. Twelve of the 27 sold for more than $300 per square foot with the weekly rental units that closed bringing substantial premiums to those in buildings that prohibit short-term rentals which are the vast majority of local condos. Skyrocketing vacation rental rates have pushed the prices of units in the handful of short-term rental buildings to unheard-of levels. Two bedroom oceanfront units with the ability to do vacation rentals have pushed over $600,000.

The condo collapse in Surfside happened one year ago this month and it seemed that there were going to be no impact after the Florida legislature earlier this year chose not to act on the Florida BAR task force recommendations. Absent legislative action, property insurers took steps to protect themselves and are increasing premiums and in some cases cancelling policies on a wide scale. 

Coming in from left field, the biggest impact so far has been an addendum to the Fannie Mae condo questionnaire. The condo questionnaire must be completed by a condo association for a prospective purchaser who is buying with a mortgage and the answers must conform to Fannie Mae guidelines if the mortgage is to be approved. In the past the main potentially deal-killing issues were ratio of residents to renters, percentage of past due owners, number of units owned by same entity, reserves, insurance and existence of current litigation. The full review questionnaire since March 2022 is much more probing with pages of questions about building condition, date of last structural inspections, findings of that inspection and plans to correct and fund those findings. A respondent who is lucky enough to have a recent satisfactory inspection is likely to be given pause by questions on page two about the association's "awareness" of any safety or structural issue. This is sure to strike some fear in the poor soul who is asked to complete the questionnaire as is the question about "planned" special assessments. That expands the existing requirement to disclose special assessments from those that have actually been issued to any that are "planned". There are also new questions about date of last reserve study and balance of the reserve account. It's safe to expect some Board members and managers to refuse to complete the new full-review questionnaire.

One bright spot in this (so far) is that the limited review condo questionnaire has only limited changes so buyers in buildings that can't satisfactorily answer the full-review questions can put 30% down and hope to be able to pass the shortened review questions. Note that limited reviews will still contain broad questions about "planned" assessments and deferred maintenance. Owners in older buildings with deferred maintenance would be well-served by pressuring their Board to address structural issues sooner than later. Inability to satisfactorily answer the condo questionnaire will limit a seller to cash offers only, potentially impacting selling prices. However all this plays out, I stand by my prediction that expenses for owners in older Florida condos are going to continue to soar. 

Sellers of condos need to know whether or not their association can pass the full (or limited) condo review so they don't waste time accepting a low down payment mortgage offer that is destined to fail. Same goes for owners in the not-few local buildings that can't pass any questionnaire. Those buildings have been relegated to cash deals only for years but I still see the occasional contract go contingent with a mortgage knowing that it will be back on the market soon. This is always an inexperienced or out-of-town agent who isn't familiar with the building. Sellers should ask prospective listing agents what issues buyers seeking a mortgage will be facing in their building so that they can avoid the disappointment of a failed contract. A listing agent who can't answer that should be removed from consideration.

I'd love to hear from readers who've renewed their flood policies since April 1. Have your rates gone up? How much? I expected substantial increases especially for those in flood zones but haven't heard anything in the two months since the changes took effect.

Anyone who'd like to read the new full review condo questionnaire can email me at for a copy. I would advise any Board members or owners planning to sell to familiarize themselves with the questionnaires.

"Money is a lot like alcohol.  It doesn’t change a person.  It amplifies who they are." _anonymous