by Steven L. Daniels and Joshua M. Atlas
This was published as a column called, “Downtown West Palm Condos Compete With New Luxury Units,” on August 11, 2016, in the Daily Business Review.
Now that the Great Recession has been officially over for several years, many new residential projects are either under construction or on the drawing boards throughout Palm Beach County, particularly in and around downtown West Palm Beach.
As a result of these new projects coming online in the immediate and not too distant future, existing condominiums are facing a different problem than they faced 10 years ago: stiffer competition from their newer and more modern neighbors for buyers. The new challenge is demanding condo associations to take a proactive approach to mitigate the impact of new luxury condos being delivered in a relatively small market. Not taking action is not an option if condo owners want to protect and grow the value of their condos by remaining competitive in the market.
Many of the condo associations we represent, especially in downtown West Palm Beach, are preparing for this new competition and the resulting pressure on property values by upgrading their exterior appearance, modernizing their amenities and improving the infrastructure of their buildings. They want to be ready to compete when downtown West Palm Beach begins to deliver a significant number of new luxury condo units.
Between Bristol Condominium on Flagler Drive and Park Palm Beach in the Northwood-Curry Park section of downtown, 174 units are expected to be delivered during this real estate cycle. That’s nothing compared with the over 1,600 combined units planned between the Icon Palm Beach, Eighty Points West and Transit Village projects, none of which have broken ground yet. Development in the North Flagler-Riviera Beach neighborhoods, the Northwood-Currie Park area and the South Dixie corridor also promise to bring additional options to condo buyers seeking the urban living experience.
Unlike the Miami condo market, with the influx of foreign buyers looking to protect their wealth with investment in Miami real estate, Palm Beach County condo buyers are often northerners or existing residents looking to upgrade their existing units, downsize their residences or trade in the gated community golf club scene for an urban living experience. As such, the pressure to buy is not as great, and they can be more discriminating in their purchase. As is often the case in Palm Beach County, many buyers (condos and noncondos alike) seem to gravitate to newer projects. So with all of these new units coming online, how does an existing 20- to 30-year-old condominium compete? They do so in several ways.
First and foremost, they improve the “curb appeal” of their building. At the Waterview Condominium on Flagler Drive, the exterior has just been painted with clean-looking white as opposed to a brown color that was popular in the 1970s. With the blue water of the Intracoastal Waterway and white hulls of the boats docked behind the building, the white exterior softens the look of the building and creates a more modern and appealing appearance. The Waterview also recently renovated their fitness area along the Intracoastal.
On South Flagler Drive just next to the Sunfest concert area, Trump Tower Condominium will soon be undergoing the process of completely renovating their lobby area, freshening up the exterior landscape and upgrading their fitness area. The takeaway from such extensive common area renovations is that no matter how much a unit owner renovates their unit to protect and enhance its market value, if the exterior and lobby of a building does not have an inviting look, potential buyers may not even make it to the elevator.
In some cases, condos like Trump Plaza have also made major repairs and upgrades to the guts of their building. They recently replaced their vertical HVAC piping and connections to units in both towers and are in the process of replacing their emergency generator. These upgrades may not be visible, but to a savvy buyer who is concerned about a condominium building’s physical condition and the potential of significant special assessments in the near future, these improvements are a great selling point.
When undergoing these types of improvements, it is not enough to simply extend competitive bids to contractors and vendors. In many cases, the size and complexity of these improvements extend beyond the more common contracts handled by condominium boards and managers. A degree of expertise is necessary in order to ensure that the correct work is bid, the right contractor selected, and the appropriate contract is negotiated and executed.
Preparing good and accurate bid instructions and clear construction specifications should be done by those who perform those tasks on a regular basis. Condominium building improvements can often cost in the high six figures or even higher, and having the wrong person or person overseeing the process can result in devastating results, whether in needless delays, cost overruns or design and construction defects.
Once the decision and effort are made to enhance their building and protect and increase the value of their units, the last thing an older condominium association needs is to be embroiled in construction litigation.
Steven L. Daniels is the managing partner in the West Palm Beach and Boca Raton offices of Arnstein & Lehr concentrating in real estate and condominium/community association law. Joshua M. Atlas is a partner in the firm’s West Palm Beach office and a member of the construction law and commercial litigation practice groups.