STATE OF FLORIDA DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION DIVISION OF FLORIDA CONDOMINIUMS, TIMESHARES AND MOBILE HOMES IN RE: PETITION FOR ARBITRATION CONDO TERMINATION NORMA QUINONES and KRISTIE A. QUINONES, Petitioners, v. Case No. 2016-00-9685 OMNI BAY HOUSE CONDOMINIUM ASSOCIATION, INC., Respondent. / FINAL ORDER On February 19, 2016, Norma Quinones and Kristie A. Quinones (Petitioners) filed an arbitration petition challenging the Plan of Termination of the Omni Bay House, A Condominium (the termination plan) recorded in the public records of Miami-Dade County, Florida, on November 23, 2015. Petitioners alleged that the termination plan did not include the disclosures required by section 718.117(3)(c)3., Florida Statutes, and that the plan s valuation of Petitioners unit was unfair and unreasonable. On March 22, 2016, Respondent filed an answer. By order dated July 15, 2016, the dispute involving Petitioners claim that the termination plan did not include the statutorily required disclosures was found to be moot and Respondent was permitted to move forward with the termination plan while jurisdiction was retained over Petitioners claim that Respondent s appraised value of their unit is unfair and unreasonable. 1
A telephonic final hearing was held in this matter on September 13, 2016, at which time the parties were permitted to present evidence and witness testimony. APPEARANCES For Petitioners: For Respondent: Eric J. Strauss, Esq. 2601 South Bayshore Drive Suite 850 Coconut Grove, FL 33133 Jamie Tarich, Esq. The Tarich Law Firm, P.A. 19495 Biscayne Boulevard Suite 606 Aventura, FL 33180 Findings of Fact 1. Omni Bay House Condominium Association, Inc. (Respondent) is the legal entity responsible for the operation of the Omni Bay House Condominium (the Condominium) located in Miami-Dade County, Florida. 2. Petitioners own unit 108 at the Condominium. 3. On November 23, 2015, Respondent recorded the Plan of Termination of the Omni Bay House, A Condominium (the termination plan) recorded in the public records of Miami-Dade County, Florida. 1 4. The termination plan does not include a separate valuation of the condominium s units and common elements. 5. The Condominium contains 24 units. 6. At the time the termination plan was recorded, Bahia Vallarta, LLC (Bahia) owned all of the units except for units 108 and 208. 1 On March 15, 2016, Respondent recorded the Amended Plan of Termination of The Omni Bay House, A Condominium which included the disclosures required by section 718.117(3)(c)5., Florida Statutes, rendering Petitioners claim regarding the disclosures moot. 2
7. Paragraph 9 of the termination plan provides for the sale of the remainder of the condominium property to Bahia as follows: Sale to Purchasing Owner. Bahia Vallarta LLC, a Florida limited liability company (the Purchasing Owner ), the record owner of 22 of the units in the condominium (e.g., all of the units in the Condominium except for units 108 and 208), and has expressed an interest in acquiring the entire Property. Provided [sic] that Purchasing Owner delivers to Trustee, in cleared funds, (i) the aggregate amount representing the values of the Units in the Condominium not then owned by Purchasing Owner (the Non-Purchasing Owners ), as set forth in the Appraisals, and (ii) as to all other portions of the Property, the aggregate amount representing the interests of the Non-Purchasing Owners in such Proceeds, less (iii) all unpaid ad valorem taxes and assessments (including Association Assessments) for such units, prorated through the Effective Date (the Assessments ) (collectively, the Acquisition Price ), the Trustee shall convey the Property (including, without limitation, all Units and Common Elements) to Purchasing Owner by a trustee s deed (the Conveyance ). By way of example only, if the Appraisal were to determine that the aggregate value of the Units of the Non-Purchasing Owners was Two Hundred Thousand and 00/100 Dollars ($200,000.00) and that the value of the other portions of the Properly was Five Thousand and 00/100 Dollars ($5,000.00) and that Non-Purchasing Owners Interest in Other Proceeds was ten percent (10%), then the Acquisition Price would be Two Hundred Thousand Five Hundred and 00/100 Dollars ($200,500.00) (which is 100% of the value of the Units of the Non- Purchasing Owners and 10% of the value of the other Property), reduced by the Assessments. The Trustee shall also withhold any funds required by the Federal Investment in Real Properly Tax Act of 1980. 8. An appraisal of units 108 and 208 dated January 5, 2016, completed by The Cornerstone Group of South Florida, Inc. (the Cornerstone Appraisal) at the request of the termination trustee, concluded that the as is fair market value of unit 108 was $150,000.00. The Cornerstone Appraisal also found the fair market value of unit 208 to be $150,000.00. 9. The Cornerstone Appraisal states that it used the sales comparison approach to estimate the market value of the units. This methodology was described in the Cornerstone Appraisal report as follows: 3
The market value estimate by the sales comparison approach is derived by comparing the subject property to similar properties that have recently sold, are listed for sale, or are under contract. The premise is that the value of the subject property is related to prices of comparable, competitive properties. The application of this technique involves the selection and analysis of comparable sales, which are adjusted to provide a value indication for the subject property. Elements of comparison include financing, conditions of sale, market conditions, location and physical conditions. In the case of income-producing properties, the relative income producing capability is also considered. The comparable sale prices tend to set the range of value into which the subject should fall. The subject market for comparable sales is considered to be similar nearby condominium units in the neighborhood. Our market investigation concluded with six similar complexes and 17 sales that are summarized in this section of the report. The sales were selected based on vintage, water view, unit size, building amenities and parking. They were deemed the best available at the time of analysis. We have analyzed the sales based on price per square foot basis. This is a common measure of comparison for improvements similar to the subject and widely used by buyers and sellers in the local market. They provide a consistent basis for comparing the sales to the subject in the face of varying unit types. 10. The Cornerstone Appraisal report further states that the appraisal is based upon the definition for fair market value as provided for by section 718.117(3)(c)3., Florida Statutes. 11. Petitioners presented the testimony of Andres Amoedo who is a real estate attorney and licensed general real estate appraiser. Mr. Amoedo stated that he has been a property appraiser for approximately 20 years and appraises approximately 200 properties a year. 12. Mr. Amoedo, at the Petitioners request, appraised Petitioners unit on two occasions completing written appraisals each time. 13. The first appraisal was conducted in October 2015. This appraisal was rejected by the arbitrator. By order dated April 15, 2016, Petitioners were ordered to file a new appraisal based upon the fair market value of the unit as defined by section 718.112(3)(c)3., Florida Statutes. 4
14. Mr. Amoedo testified that he completed the second appraisal, effective May 6, 2016, concluding that Petitioners unit was valued at $372,000.00. 15. Mr. Amedo testified that he came to the property valuation as follows: Like the previous appraisal, the methodology that I used to establish the market value of this property is called the sales comparison approach. So what I did was, the first thing I did is, obviously, inspect the property. I looked for the conditional characteristics, locational characteristics, the view that the property has and then I looked for comparables outside the subject s building pursuant to Florida statutes in order to find the most similar sales available to me to establish the market value. So what I did was I searched for properties that were sold in bulk or by a buyer in its entirety because those properties best represent the current market conditions of subject properties. 16. For comparison purposes, Mr. Amedo relied upon the sales of five apartment complexes that closed in the years ranging from 2010 through 2015 along with the active listings for three apartment complexes in the Condominium s community. His appraisal was based upon the way investors and developers value the purchase of an entire property. Therefore, his appraised value of Petitioners unit is based upon the Condominium being terminated and sold as a single project with Petitioners unit being valued relative to their share of the post termination value of the Condominium property. 17. Mr. Amoedo found Petitioners unit to be unique in the Condominium and community because it has a private yard with direct access to the bay. 18. As to the Cornestone appraisal, Mr. Amoedo took exception that Petitioners unit was appraised at the same value as unit 208. Mr. Amoedo testified that in his opinion the Cornerstone appraisal was unfair and unreasonable for two reasons, stating as follows: I think, in my opinion, the appraisal is not reasonable for two reasons: First of all, the comparables used are situated in buildings that are not undergoing a termination of condominium or that they re not being purchased in bulk. I think 5
that s a factor that influences value. A seller of a property under a termination of condominium collectively knows that they re usually going to receive more when they sell a property to an investor, which is the incentive of them getting together and selling a property and agreeing to a termination of condominium and so that same requirement or that same market circumstance we want to find in comparable buildings. These comparables that were used in other buildings were not undergoing that same circumstance and therefore, does not give you a true indication of what the value would be for these, for the particular units in subject, in particular unit 108 and other units within the Omni Bay House Condominium. Now, that s one of the reasons why I wouldn t think the appraisal is appropriate because it s comparing two different things. The second thing is that there is no consideration given to the -- if I were to do the approach that the other appraisers used, I would at least, then, give value to that parcel of land that is unique to subject s unit which was not and how do I do that? Well, I would have tried to look at the market to see how I could extrapolate from the market some kind of quantifiable adjustment to be applied for that piece of land. It was a difficult task to do but it s something that needs to be done, at least either in a quantitative matter by through measurable adjustments or qualitative by applying a percentage for that superior view and location. Those are my only two concerns and, you know, they re big concerns and, again, if this was a typical appraisal, the comps would have been applicable although, again, I think that comps from within the building as well as maybe a combination of the two would have been the correct way of appraising the property. 19. He did not use the same appraisal method as the Cornerstone appraisal finding that the ideal comparable would have been other terminated condominiums or other units with the Condominium. 20. Mr. Amoedo did not complete an appraisal for unit 208. Conclusions of Law The undersigned has jurisdiction over this dispute and the parties pursuant to sections 718.117(16) and 718.1255, Florida Statutes. Additionally, Petitioners have timely challenged the termination plan. 718.117(16), Fla. Stat. Petitioners bear the burden of proof that the termination plan is unfair and unreasonable. It is undisputed that Bahia is deemed a bulk owner for the purposes of section 718.117(3), Florida Statutes, and that Bahia owns at least 80 percent of the voting 6
interests in the Condominium. Under such a scenario, section 718.117(3)(c)3., Florida Statutes provides that the plan of termination is subject to the following conditions and limitations: For their respective units, all unit owners other than the bulk owner must be compensated at least 100 percent of the fair market value of their units. The fair market value shall be determined as of a date that is no earlier than 90 days before the date that the plan of termination is recorded and shall be determined by an independent appraiser selected by the termination trustee. For an original purchaser from the developer who rejects the plan of termination and whose unit was granted homestead exemption status by the applicable county property appraiser, or was an owner-occupied operating business, as of the date that the plan of termination is recorded and who is current in payment of both assessments and other monetary obligations to the association and any mortgage encumbering the unit as of the date the plan of termination is recorded, the fair market value for the unit owner rejecting the plan shall be at least the original purchase price paid for the unit. For purposes of this subparagraph, the term fair market value means the price of a unit that a seller is willing to accept and a buyer is willing to pay on the open market in an arms-length transaction based on similar units sold in other condominiums, including units sold in bulk purchases but excluding units sold at wholesale or distressed prices. The purchase price of units acquired in bulk following a bankruptcy or foreclosure shall not be considered for purposes of determining fair market value. The parties disagree as to the proper method for appraising the value of Petitioners unit s value. Respondent contends that the fair market value of Petitioners unit is $150,000.00 whereas Petitioners contend it is $372,000.00. As an attachment to its petition, Petitioners filed an appraisal report completed by Andres Amoedo in October 2015. Section 718.117(3)(c)3., Florida Statutes, requires that Petitioners be compensated at 100 percent of the fair market value of their unit. The statute defines the fair market value to be based upon similar units sold in other condominiums. Because the October 2015 appraisal report was based upon recent sales of units within the Condominium, the undersigned found that the appraisal did not 7
comply with the statutory definition for fair market value and ordered Petitioners to file a second appraisal based upon the definition. Petitioners argue that the fair and reasonable way to appraise the value of their unit is to determine the unit s potential share of the post termination sale of the Condominium property in its entirety to an investor or developer. Therefore, Petitioners second appraisal used the sale or active listings of eight apartment complexes as comparables in order to determine the fair market value of Petitioners unit. Petitioners are not bulk owners. Therefore, section 718.117(3)(c)3., Florida Statutes, entitles Petitioners to 100 percent of the fair market value of their unit. The statute provides a very specific and narrow meaning for fair market value limiting it to the price of a unit that a seller is willing to accept and a buyer is willing to pay on the open market in an arms-length transaction based on similar units sold in other condominiums, including units sold in bulk purchases but excluding units sold at wholesale or distressed prices. The statute further limits comparable sale to period no earlier than 90 days prior to the date of recordation of the plan of termination. The statute does not provide for valuing units based upon the potential value of the post-terminated condominium property. Rather it limits valuation to the sale of units individually or in bulk in other condominiums. Accordingly, Petitioners second appraisal does not use a proper methodology for determining the fair market value of their unit. Section 718.117(12)(a), Florida Statutes, provides that a plan of termination may require separate valuations for the common elements. However, the statute further provides that in the absence of such a provision, it is presumed that the common elements have no independent value but rather that their value is incorporated into the 8
valuation of the units. Petitioners expert testified that the appraisal method he used was appropriate because the real value of the Condominium is in the land once the Condominium has been terminated. Petitioners second appraisal assumes that the terminated Condominium property will be sold for redevelopment. However, the intent of Section 718.117(3)(c)3., Florida Statutes, is to determine the fair market value of a unit prior to termination by comparison to similar units sold in other condominiums prior to the termination of the condominium. The statute does not intend that the unit s value be determined subsequent to termination; otherwise, the statute would have simply required the appraisal of the value of the terminated condominium property in its entirety while providing that a unit owner be paid his or her requisite share of the appraised value. Additionally, as noted by Petitioners expert Mr. Amoedo, a terminated condominium is not a good comparison for determining the value of the sale of a unit in a non-terminated condominium because the buyer is willing to pay more when the terminated condominium property is sold in its entirety. 2 Therefore, because the intent of the statute is to require a valuation of a unit prior to termination, Petitioners second appraisal fails. The Cornerstone appraisal was based upon the sale of 17 units in other condominiums in the community. The Cornertsone Appraisal report s description of the valuation methodology it used is consistent with the statutory definition of fair market value. Mr. Ameodo criticized the Cornerstone appraisal because it did not use the same methodology that Petitioner s second appraisal used. Additionally, he contended the 2 This conclusion obviously assumes that the real estate market is sound and investor driven. The purpose of the voluntary termination provisions of the statute is to protect a non-bulk owner s interest while allowing developers to repurpose failed condominium projects. As such, the statute tempers the potential losses for the non-bulk owner when the condominium market is depressed; however, the manner by which the Legislature has chosen to lessen losses also results in the tempering of windfalls during a strong market. 9
Cornerstone methodology was flawed because it failed to take into account the unique features of Petitioners unit (bay view with a private backyard on the bay) and valued the unit the same as unit 208 which lacked such unique features. Mr. Amoedo testified that if he had used the same methodology, he would have made adjustments to account for the extra value of the uniqueness of Petitioners unit. However, Mr. Amoedo did not provide the appraised value Petitioners unit if he had used the Cornerstone methodology while taking into account the uniqueness of Petitioners unit. Additionally, he did not appraise unit 208. Petitioners were afforded two opportunities to appraise their unit in compliance with the statutory requirements. Both appraisal methodologies used by Petitioners have been rejected. Petitioners have not provided an alternative value for their unit using the methodology employed by the Cornerstone Appraisal while taking into account their expert s criticisms of the Cornerstone Appraisal. As such, Petitioners have failed to establish the Cornerstone Appraisal is unfair and unreasonable. Based upon the foregoing it is ORDERED: Petitioners requested relief is denied. DONE AND ORDERED this 14 th day of November, 2016, at Tallahassee, Leon County, Florida. James W. Earl, Arbitrator Department of Business and Professional Regulation Arbitration Section 2601 Blair Stone Road Tallahassee, FL 32399-1030 Telephone: 850.414.6867; Fax: 850.487.0870 10
Certificate of Service I hereby certify that a true and correct copy of the foregoing Final Order has been sent by U.S. Mail to the following persons on this 14 th day of November, 2016: Eric J. Strauss, Esq. 2601 South Bayshore Drive Suite 850 Coconut Grove, FL 33133 Fax: 305.444.1939 Jamie Tarich, Esq. The Tarich Law Firm, P.A. 19495 Biscayne Boulevard Suite 606 Aventura, FL 33180 Fax: 866.858.1226 James W. Earl, Arbitrator 11