How to Maximize Revenues in a Tight Condo Market

Developers are struggling to profit from condominiums in today's market for a variety of reasons, none of which can be easily brushed aside. From the downward trend of purchase prices to rising mortgage rates for buyers, profits are squeezed from the start. Factor in escalating insurance costs, and a large supply of inventory, and the result is eroding profit margins.

However, there are creative approaches that developers can consider as alternative sources of revenue. It may be challenging, but if one or two of the strategies yields a positive result, the condominium projects can be more viable and less risky.

  1. Draft favorable contracts — Upon constructing a condominium, a developer creates a document known as the declaration of condominium. This document specifies certain property rights that could lead to future revenue. There are several options that developers can incorporate into their projects as a means of adding this future revenue.

    The popularity and high use of cell phones offers a unique opportunity. Property owners may consider leasing rooftop space to companies looking to position a cellular tower in the area. The developer should provide for this provision in the declaration of condominium by stating from the outset that air rights above the condominium improvements are not part of the condominium. These rights remain with the developer.

    Additionally, the declaration of condominium should include an easement provision noting that the developer can utilize the roof, which can then be assigned to a cell company for installing and maintaining the tower. To allay fears by residents, the cell company contract should provide proof to the condominium association that it has sufficient insurance in case there are unforeseen damages that may be caused by the tower impacting condominium improvements.

  2. Parking for sale — Because the development trends are moving toward higher density, parking is a premium. A wise developer will make every effort during the project's development stage to increase the parking available, going well past minimum requirements. That way, a new revenue stream with longevity can be developed through the leasing, or sale, of the excess parking.

    The target market for purchasing extra space need not be limited to condo owners. The public is fair game as well. Once again, however, care must be taken in the condominium documents to reserve all excess parking for the developer. This will prevent unit owners from claiming the excess parking after the condominium's turnover, but owners should be reassured that they will receive sufficient parking.

  3. Capitalize on air rights — Reserved air rights on either side of the building, specifying adequate easements and insurance, allow a developer to create advertising revenues through signage. By working with a reputable advertising company to create signage for attachment to the sides of the condominium improvements, additional dollars can be generated. In the case of a commercial condominium, this signage can be optioned to the condominium owners for their own increased visibility.

  4. Provide commercial space — Creativity is the key element, so if there is sufficient space, developers can look to create commercial or retail space, still maintaining the rights of ownership for future leasing of the space. This can be a win-win scenario, if tenants have the option to provide services. The possibilities include food services, salons, card and gift shops, depending upon the location.

    Because pre-construction or pre-conversion condominium contracts often allow significant time — sometimes years — before the condominium units close, there are many unforeseen factors that can impact the plans during this period.

  5. Identify future opportunities — An in-house sales team can be instrumental in future revenues. If the condo is never occupied and flipped virtually immediately to a new owner, resold after brief occupancy, or simply assigned to a new tenant, this team can generate revenue.

The developer can spin off the team into a separate company. If a development has experienced healthy growth, the developer's goodwill will be returned with listings from happy owners taking advantage of their unit's increased property value.

In a tightening condo market, the combination of creativity and experience enables a developer to capture a revenue stream that less imaginative industry pros would never envision.

Louis Archambault is an attorney with the Miami law firm of Pathman Lewis. He can be contacted at the following e-mail address:[email protected]

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