Are Collapses of Multi-owner Properties Inevitable?
New York Real Estate Journal recently published an article authored by Olshan Real Estate partner Thomas Kearns entitled “Are Collapses of Multi-Owner Properties Inevitable?” The article discusses the recent collapse of a condominium building in Miami and how being a multi-owned property created issues in its management. Mr. Kearns gives a scenario that describes what an issue with these kind of properties can be, “Problems are discovered but the fix is expensive. Unit owners are either resistant to expensive projects or distrustful of the board managing the building or both. Board members cycle through with limited progress.” He also asks the question of whether the owners are able to govern their properties in an efficient manner, “Are multi-owner properties truly governable in these circumstances? In addition to condominiums and cooperatives, what about properties owned by tenants-in-common, a frequent arrangement in commercial properties?” But he identifies the underlying problem and said, “All of these legal arrangements have the same issue: A group of owners with varying degrees of interests, experience, judgment and financial wherewithal.” Using the recent condominium collapse as an example, Mr. Kearns gives a solution on how selling the property could’ve prevented further mismanagement. He said, “For the Miami collapse, using hindsight, one answer was to sell the property when the extent of the problem was discovered. By admitting that the project is too expensive, too difficult to manage, and too disruptive, the board could have taken the necessary vote to sell the building to a developer who would redevelop the property bigger and better.” However, he states, “It is very hard to get owner consensus on decisions like that.” Mr. Kearns then takes a look at the purchaser’s side and how they can protect themselves from multi-owner property mismanagement. Although it may be tedious he concludes, “the answer may lie in old-fashioned diligence that should be done on each purchase. Talking to building staff, reviewing board and shareholder minutes and owner correspondence are among the suggested actions before investing.”