The fate of one of the largest oceanfront sites in Miami Beach could play out in the coming months, as developer David Martin is offering $500 million for the Castle Beach Club condo building. The move comes months after condo giant Related Group and partner 13th Floor Investments pulled their bid for the property.
Though Martin’s Terra is offering the same amount for the 4-acre, 570-plus-unit property in Mid-Beach, in the interim, the real estate and financial markets have changed. How Terra approaches the process will determine whether it’s successful, attorneys and brokers say.
Condo buyouts of that size are a “major undertaking,” said Carter McDowell, a partner at the Miami-based law firm Bilzin Sumberg. The most difficult aspect of the deal is securing enough support from owners, McDowell and others said.
“There’s no such thing as unanimity of opinion within a condominium,” McDowell added. “The larger number of people involved, the [harder] it is to reach consensus.”
At Castle Beach, the association hired Colliers to market the 57-year-old property for sale months after the 2021 deadly condo collapse in Surfside. A Colliers team led by Gerard Yetming secured nine bids in early 2022. After Related and 13th Floor canceled their offer, Terra’s was back on the table.
Ultimately, Terra is looking to secure more than 95 percent of owners, to avoid 5 percent of owners from blocking the proposed termination. State law requires 80 percent of the condominium owners to approve the termination, but 5 percent can block it.
Here’s how Terra could move forward with the process:
Structuring condo buyouts
As the next step, Terra is expected to send out individual offers to unit owners. Unit owners would have a couple of months or so to decide whether they want to move forward with the sale, negotiate or reject the offer. Terra and Colliers declined to comment.
Developers will typically base each individual price on the percentage ownership the unit owner has in the condo’s common areas. That’s how maintenance fees are often calculated.
“That’s at least a starting point,” said Berger Singerman attorney Jeffrey Margolis. “You can always have a few holdouts who can hold out for more.”
The majority of the units at the 18-story Castle Beach Club — roughly 440 — are studios with equal ownership shares in the common area. That means those owners would likely receive equally priced offers, making it an easier negotiation for developers, said Arden Karson, a former Related Group executive who now heads her own firm, Karson & Co.
“Then you don’t get into these conversations of, ‘My unit is worth more,’” Karson said.
Though some owners live in the building, many rent their units out on a short-term basis. Some also own commercial units.
Investors, Margolis said, “are much easier to deal with because they don’t have the emotional attachment” that owners who live there do. They also may be more incentivized to sell due to the growing cost of maintaining the aging property. One unit owner told The Real Deal their dues had doubled following a multimillion-dollar assessment the association enacted last year.
Still, Terra will have to convince some of the unit owners who opposed Related and 13th Floor’s deal. Mickaël Sebban, among the 5.1 percent of the building who blocked that deal, said that for Terra’s offer to succeed, “it will have to accommodate the larger unit owners who felt completely cheated” before. At the time, the Related/13th Floor joint venture confirmed to TRD that it was “unable to secure enough sellers to complete the deal,” but also pointed to unnamed “outside factors” as to why the joint venture was pulling its offer.
In the previous deal, Sebban said larger units of more than 2,000 square feet were offered $1.3 million, when they felt they should receive more. Owners of studios were offered about $770,500, the contracts show.
Developers can also add clauses in contracts that make the individual deals contingent on the developer securing the majority of sellers.
A more controversial — yet not uncommon — approach would be for developers to start buying units in a building, either secretly or not, in order to gain seats on a condo board and/or attempt to change the condo documents. Alternatively, developers can try to terminate a condo before they own the majority of units. After a developer files their termination plans with the state, unit owners can sue, dragging out the process even more without the guarantee that it will be successful.
“The individual deals themselves can be quick,” Margolis said. “The process could go on for a long time if the developers don’t have the sufficient percentage to terminate the condo.”
And even if the developer has more than 95 percent of the building, holdouts can still fight the deal in court, McDowell said. Holdout sellers who end up suing to block a termination can also end up getting less for their units than the price they were offered earlier on in the process. After a certain point, state law would dictate the value of the remaining units.
Ultimately, a lot can ride on the listing broker who serves as a liaison between the sellers and a bulk buyer.
“The lead broker will play a very large role in negotiating the terms of the agreement between the developer and … the unit owners,” McDowell said.
Karson agreed, adding that Yetming managed to move the $500 million offer forward, despite a worsening of the financing environment for a deal of this size.
“The ability to get this number with a credible buyer six months after Related and 13th Floor walked, that’s pretty impressive,” she said. “It really takes the personality of the team leading [the transaction]. You can’t pitch this type of deal the way you would pitch this deal to an institutional owner/seller.”
Yetming assured unit owners that Terra’s offer had been vetted. The developer, Yetming wrote in his letter to owners, “has the capability to complete this purchase and has the funding in place to do so.”
Experts agreed that the smoothest buyout and termination deals occur when developers are open and communicative about their plans.
“They hold town hall meetings with the owners to explain what’s going on. They don’t come in as the big bad developer. They come in as your business partner,” Margolis said. “If you let people know what’s going on and you keep them advised, you’re going to be much more successful.”