The lethal collapse of the Champlain Towers South condominium complex in Surfside, Florida, highlights some crucial facts investors should be aware of when considering real estate purchases, especially in Florida. Investments in condominiums, which are governed by arcane sets of rules concerning key matters such as insurance and liability, can be particularly tricky.
As of July 2, the death toll was 20, and some 143 people were missing in the collapse, which took place in the early morning hours of June 24. About half the 13-story building, which housed 136 units, was destroyed within seconds. Engineers had cited structural issues with the building, but the exact cause of the disaster is unknown.
In 2018, the structural engineering firm Morabito Consultants notified the homeowners’ association (HOA) that an inspection had found “major structural damage” to the concrete slab below the pool deck of the 40-year-old tower due to failing waterproofing, and “abundant” cracking and crumbling of columns, beams and walls in the parking garage, also under the structure. But no major repairs addressing these problems had been undertaken. (Work was underway on the roof.)
Morabito’s report included an ominous warning: “Failure to replace the waterproofing in the near future will cause the extent of the concrete deterioration to expand exponentially.”
For property owners, the disaster is a reminder that delaying repairs is a mistake.
“The most important thing for investors and landlords to understand is that if issues with their buildings are brought to their attention, they need to address those issues immediately,” says Michelle Afflalo, a principal at Ives Insurance Services, an independent brokerage in San Diego, California. “Because the homeowners’ association was notified in 2018 and nothing got done, the landlords can sue the association for allowing people to live in a dangerous setting.”
In fact, at least five lawsuits have been filed, one a class action, starting within hours of the catastrophe. The HOA’s insurance carrier, James River Insurance Company, has opted to make the maximum up-front payment that its policy allows, up to $2 million.
But it’s crucial for those purchasing condominiums to know that the HOA’s policy doesn’t cover everything. It covers everything outside of the drywall of an apartment.
“People often think the homeowner’s association’s policy covers everything, outside and in,” Afflalo says. “That’s a frequent and huge misconception, whether the condo is owned by the occupier or an investor. The CC&Rs (Covenants, Conditions & Restrictions, or rules set by the HOA) may require the owner to have another policy, like an HO-6 policy, or condominium insurance, which covers everything from the walls in. So when working with investors, we ask to see the rules that govern what is insured.
“Sometimes the price tag on a property looks amazing but there may be a reason for that,” Afflalo adds. “People want their cash flow to be as high as possible, but you have to be sure you are covered properly.”
For any investor looking to buy in an area where there are disaster threats — whether it be wildfires in California, drought or extreme heat in the Southwest, tornadoes in the Midwest, hurricanes in Texas or Florida — it’s important to be educated about catastrophe insurance.
Now, countless condominium towers in Florida, many of the same vintage as Champlain Towers, are now under a magnifying glass. There are environmental factors specific to the Sunshine State that are suspected to have played a role in the tower’s collapse, including salt air, wind and water damage from hurricanes, and rising water levels in the area’s volcanic ground.
Speaking to the South Florida Sun-Sentinel, attorney David Haber, a Miami lawyer with expertise in construction and community association law, warned that existing inspection procedures may not fully account for climate change.
“What do we have here in South Florida? We have sand, limestone, swamp, landfill, and let’s not forget, rising seas and water tables,” he says. “How does that affect buildings built 40 or 50 years ago before we had this concept of rising sea level? We don’t know, and we’re not looking.”
Surfside Mayor Charles Burkett sounded an even more ominous note in an interview with the Insurance Journal: “You think this is unique? No.”