Saturday, July 21st, 2012

Buying a Distressed Fractured Condo Building

At least in the state of Florida, buying a distressed condo building that is FRACTURED has huge potential for a Value Add investment.  In short, a Fractured Condo Building for example is a 50 unit building where currently 10 are owned by individual owners that may or may not be current on their mortgage and condo association dues. The remaining 40 units are likely developer owned condos that did not sell during the real estate frenzy a few years ago.  Due to the developers debt being too high, he cannot sell at a price that would be favorable for him/her.  Typically, this building would go into distress and the Condo Association in shambles.  Purchasing the fractured condo building would give you the 40 units and control over the Condo Association on the 10 units independently owned.

I LOVE THESE DEALS.  When you have an opportunity to purchase a Fractured Condo Building, put some wheels in motion with an experienced person in the niche and look to purchase the note or the asset.  You won’t believe how clueless lenders are on Condo Laws.  This is your leverage to get a building at pennies on the dollar.  First off, banks normally won’t do a condition update.  They also don’t know the condo statutes regarding delinquent Condo Association dues.  Here’s a secret.  If you purchase a fractured building, there is a way where you can get the bank to pay you for all the back log of delinquent Assocation dues, your first part in stabilizing the asset.

Second, know everything about Developer Successor Liability.  Typically, we can get the bank to release all pertinent information on the property that they know of so we can perform some due diligence, including walking the property.  Walking the property is essential to do with a professional inspector.  It’s worth the $350 to have them handy.  This isn’t a FULL inspection, but certified inspectors can typically locate a BIG problem.  The little problems can wait until our due diligence starts in the contract for purchase.  Something to look for that could be BIG problems:  Sinkholes (just had a deal fall through because of it), Dry-Rot on wood frame construction, such as hardy board siding.  Look for roof issues, most noticeably any “waviness” in the shingles and structure.  Look at parking.  Are there enough spaces without making it look very crammed?

Fractured Condo Buildings are a HUGE headached with HUGE potential.  Knowing Condo Statutes is a MUST and being direct with banks is also very important.  We can help in both categories.  Price ranges for our projects typically run from $3 million to $20 million, depending on size and location.  But the long term benefits of taking a fractured building and stabilizing it is worth the headaches.  Value Add opportunities are my favorite and something I would recommend looking into.

Lastly, there is no financing available for fractured condo buildings UNTIL they are stabilized.  New legislation is likely being put in place to allow favorable financing for fractured buildings, however they aren’t available as of this minute.  Cash buyers are best for purchasing this type of asset or note, however once you stabilize the asset with occupancy, condo association stability, etc..  Once you have a stable asset, lenders will allow you to refinance and during the time of stabilization, you added a lot of value to the real estate, thus a 70% Loan to Value could conceivably get you all of your invested cash back out of the deal.  Playing with house money is always most fun!

If you are interested in hearing more about Fractured Condo buildings in Florida for sale or any other investment opportunities in real estate, Contact Us today for a free consultation.

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