1 big thing: Florida’s HOA Law Reforms Take Effect This Month

Significant changes to Florida’s Homeowners Association (HOA) laws are going into effect this month, impacting governance, transparency, and homeowner rights.

Why it matters: These reforms aim to enhance transparency and fairness in HOA operations, addressing homeowners’ long-standing complaints about governance practices.

Key details:

  • Board Member Term Limits: New rules impose term limits on board members, preventing any one member from serving more than eight consecutive years unless approved by a two-thirds vote of the members or unless there are insufficient eligible candidates to fill board positions.

  • Election Transparency: HOAs are now required to adopt more transparent election procedures. This includes detailed record-keeping of election results and ensuring all members can access ballots and proxies for review.

  • Financial Reporting: The reforms mandate stricter financial reporting requirements. HOAs must provide members with annual financial statements; for larger associations, these statements must be prepared by a certified public accountant.

  • Meeting Notices and Minutes: Enhanced requirements for meeting notices and the availability of meeting minutes aim to better inform homeowners. Notices must be posted conspicuously on the property and provided electronically if possible.

  • Dispute Resolution: The changes introduce improved mechanisms for dispute resolution, including mandatory mediation before litigation, which is intended to reduce legal costs and foster amicable resolutions.

  • Work trucks in driveways? It is no longer a violation of the HOA’s CCRs.

Zoom out: The 50 pages of statutory changes follow years of advocacy from homeowner groups and are part of a broader trend towards increased regulation and oversight of HOAs across the United States.

What’s next: HOAs across Florida are updating their rules and procedures to comply with the new laws. Homeowners are encouraged to familiarize themselves with these changes to understand their rights and responsibilities under the new legal framework.

The bottom line: Florida’s updated HOA laws are set to create a more transparent, accountable, and fair environment for homeowners, potentially serving as a model for other states looking to reform HOA governance.

Go deeper: The Daytona Beach News-Journal

2: Cash Crunch for a Commercial Real Estate Fund

Florida Real Estate Newsletter

After satisfying less than half of $1.3 billion in withdrawal requests, Starwood Capital Group is facing a potentially fatal cash crunch.

Why it matters: Starwood’s troubles are another indication of the wallop the real estate industry is taking from today’s high interest rates.

  • Company leaders plan to ride it out: “We cannot recommend being an aggressive seller of real estate assets today given what we believe to be a near-bottom market with limited transaction volumes, and our belief that the real estate markets will improve.”

SREIT, as Starwood’s Real Estate Income Trust is known, is one of the country’s largest commercial real estate funds and one of the largest owners of market-rate multifamily housing.

  • Stars in its portfolio include 1 Hotel South Beach, Miami; 1 Hotel Central Park, New York; and Baccarat Hotel & Residences, New York.

  • SREIT is privately owned.

Limited redemptions: Lately, as interest rates have stayed high and commercial real-estate values have fallen — a result of the pandemic as well as the high cost of borrowing money —  SREIT’s been limiting redemptions to as much as 2% of their net asset values per month and up to 5% a quarter.

  • It’s still not enough: The firm’s been able to satisfy only about $500 million of over a billion dollars of withdrawal requests.

  • By the end of April, the fund’s liquidity dropped from $1.1 billion at the end of 2023 to $752 million. Just one year prior, the firm’s liquidity was $2.2 billion.

  • SREIT isn’t alone: Private equity giant Blackstone (BREIT) is also facing

There’s also a fundraising problem: In the first half of 2022, SREIT raised more than $600 million a month.

  • Today, the fund raises about $15 million a month.

  • Options for improving liquidity include:

  • Borrowing: Given that SREIT’s current debt is equal to 57% of its assets, high interest rates would make borrowing costly.

  • Selling: Again, high interest rates have driven up costs in commercial real estate, limiting the fund’s ability to unload assets.

  • Further redemption limitation: Analysts don’t like this choice because it would further adversely affect SREIT’s ability to raise funds.

The bottom line: If SREIT can hold the line on redemptions, it could survive this crisis. Other investors might want to take a play from SREIT’s book and likewise tighten the purse strings until the market improves.

3. More Houses, Higher Mortgage Rates

The good news is that housing inventory continues to rise. The bad news is that so do mortgage rates.

Why it matters: Normally, an increase in available homes would help pull the housing market out of a slump, but high mortgage rates continue to keep many would-be buyers out of their dream homes.

Yes, but: The first four months of 2024 have seen the largest number of active listings since 2020, but the numbers still haven’t reached pre-pandemic levels.

  • April’s inventory of nearly 750,000 homes is a 30.4% increase from the same month in 2023. But:

  • Compare that to April 2019’s roughly 1.1 million homes. Today’s housing inventory isn’t anywhere near pre-pandemic levels.

The spring effect: On the bright side, new listings did increase 12.2% — though some of that jump is attributed to the seasonal effect of listing homes before and during the spring.

Housing inventory remains chronically low because of:

  • Below-average rates of new home construction for the last decade

  • The rising tendency of homeowners to hang on to their properties, in large part due to the enormous gap between their current mortgage rates and the rates they’d get on a new purchase

By the numbers: In October, the average rate on a 30-year mortgage hit a 23-year high of 7.79%. That rate stayed under 7% this year until May; since then, it’s been hovering slightly over that percentage.

The bottom line: Would-be homebuyers have more houses to choose from, but they can’t afford them because a high mortgage rate means hundreds of extra dollars a month in payments. We could be looking at a relatively large but stagnant pool of available homes soon.

In this Master’s Series episode of the Trust This podcast, I enjoyed sitting kneecap-to-kneecap with the delightful Candace Griffin of Griffin Investment Strategies. We discuss her views on problem-solving, networking, and opening yourself up to hear those put here to guide you to success.

Listen in or watch on your favorite channel.

4. Catch up fast

  1. St. Petersburg wholesaler called on the carpet by investigative reporters after filing affidavit of memorandum of agreement on a property in 2020. WFTS News – Tampa

  2. Starter homes are turning into forever homes as owners are unable to move up to the next level. Axios

  3. Nuances that can kill a 1031 exchange. Bigger Pockets

  4. Orlando is one of the largest metros with the most overvalued properties in relation to income levels. Orlando Business Journal

  5. Mortgage “porting” is popular with international lenders, and we’re starting to see it show up here as mortgage “spreading.” Bigger Pockets

5. Closing Thought – The Balancing Act: Optimism and Pessimism in Entrepreneurship

Some flowers growing in the backyard in Asheville. Photo: Joe Seagle

Balancing optimism and pessimism is crucial for entrepreneurs’ growth and survival. This duality can drive innovation while safeguarding against unforeseen challenges.

The big picture: Optimism fuels ambition and innovation.

  • Entrepreneurs who believe in their vision are likelier to take risks, inspire their teams, and attract investors.

  • However, unchecked optimism can lead to overlooking potential pitfalls.

Optimism’s role in growth:

  • Vision and Motivation: Optimistic entrepreneurs are better at envisioning a successful future and motivating their teams to achieve ambitious goals.

  • Risk-Taking: Believing in the potential for success encourages entrepreneurs to take calculated risks, which are often necessary for significant growth.

  • Resilience: Optimism helps entrepreneurs persist through setbacks, viewing challenges as temporary obstacles rather than insurmountable failures.

Pessimism’s role in survival:

  • Risk Management: A healthy dose of pessimism ensures that entrepreneurs anticipate potential problems and devise contingency plans.

  • Resource Allocation: Pessimism can lead to more prudent financial management, ensuring that balance sheets are tight while cash reserves are conserved and efficiently utilized.

  • Decision Making: Considering worst-case scenarios enables entrepreneurs to make more informed and cautious decisions, reducing the likelihood of catastrophic failures.

Between the lines: Striking the right balance between optimism and pessimism is difficult. Entrepreneurs must cultivate the ability to switch perspectives depending on the situation at hand.

How to strike the balance:

  • Scenario Planning: Regularly engage in scenario planning to prepare for both best-case and worst-case outcomes.

  • Advisory Boards: Build a diverse advisory board with optimistic and pessimistic perspectives to provide balanced insights.

  • Mindfulness Practices: Employ mindfulness practices (meditation) to stay grounded and maintain clarity in decision-making.

The bottom line: Entrepreneurs must harness the power of optimism to drive growth and innovation while leveraging pessimism to ensure their business’s long-term survival. Mastering this balance can create a robust and adaptable business capable of thriving in both prosperous and challenging times.

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