Since the unfortunate Champlain Towers’ building collapse clients have inquired about the “loss of value” of older concrete buildings located south Florida. They want to know if their condominium units will be affected in older concrete buildings.
Construction defects similar to this are covered under “detrimental conditions” with respect to market value and real estate appraising. The skill of the appraiser to analyze and collect the data is important to the process. Below are some of the issues dealing with concrete construction, defects and how they can affect the market value of real estate. The appraiser must also use his or her skill in analyzing upward or downward overall market conditions can occur at the same time, and be the reason for a change in value.
Real Estate Damages – As mentioned, the subject revolves around real estate damages and the analysis of detrimental conditions. Detrimental conditions can fall under various categories as mentioned in my earlire post of April 22, 2018, in this blog.
Concrete Construction - Due to our unique and widespread use of concrete in south Florida, more than any other real estate market in the country, this issue involves numerous concrete structures that have been constructed in south Florida. Not only have they been built along the coastline, but also on “dry lots”. Due to the prevailing winds and close proximity to the ocean and bay, salt water can work its way into older concrete accelerating the rusting of reinforcing bars (known as “rebar”). The expansion outward of the rebar cases concrete cracking and “spalling”. This sets off a chain reaction where more salty water gets into the concrete and steel, and the cycle repeats if untreated. Also, in the beginning of the formation of Miami in the early 1900’s brackish water was often used in concrete mixes adding to the corrosion of reinforcing steel1.
Concrete is good in “compression” and not good in “tension”. This is why rebar is used in concrete and they work together to form a strong unit when placed strategically in a concrete pour encased the rebar. Rebar is numbered by in 1/8th inch increments. A No. 4 rebar is ½ inch in diameter, and a No. 3 rebar would be 1/8th inch smaller. A No. 8 rebar is 1” in diameter. The steel bars have deformations in their round exteriors so that the concrete will grab ahold of it when the concrete cures or dries. Marine construction uses a coated rebar due to proximity to the salty water.
Diminution in Value - There is a methodology for applying appraisal techniques to address these detrimental conditions as they relate to real estate. The appraiser must establish whether or not there is a diminution in value to the real estate and each property must be analyzed separately.
In older buildings in south Florida the focus is now on parking garages, balconies, and foundations that often show signs of “spalling” in structural members and on concrete decks. See below in comments on the Champlain Tower’s collapse on how concrete decks tied in with columns can compromise the main building.
40 Year Recertifications - In Miami-Dade and Broward Counties, all buildings which are 40 years old from the date of the original Certification of Occupancy must be recertified by the Building Official every 10 years to ensure they are safe. Building departments will strengthen requirements for building inspections and recertifications, and they will likely drop from the current “40-year” chronological age requirements to much lower ages.
Three Approaches to Value - There are three approaches to value – the cost, comparable sales and income approaches. All should be considered, and one or more are typically developed. The appraiser first establishes market value as if the detrimental condition does not exist and the second part of the process is to determine the diminution in value of the subject property, if any. The difference between these two values can result in the diminution in value and or damages.
Florida Law Disclosures - Florida law requires sellers to disclose any known defects and Realtors obtained signed disclosure statements from sellers when listing and selling real estate. A home seller must disclose any facts or conditions about the property that have a substantial impact on its value or desirability and that others cannot easily see for themselves. However, this law does not over commercial property.
Upon the discovery of the detrimental condition (DC) market value may fall if market data supports a decline. In the case of older buildings that show signs of depreciation, such as spalling concrete and leaking concrete decks, if a cost approach is employed and determined to be the most credible approach to estimate repairs, employing the cost approach may be a good approach in dealing with the impacted value. It typically requires an engineer’s evaluation of the structural integrity of the building together with a contractor’s estimate for the repairs/replacements. The appraiser’s analysis is crucial in the context of the three approaches to value.
Methods to Determine Detrimental Conditions in Real Estate - In the beginning of this process, and prior to any investigation and engineers’ studies, the value is often impacted the most, and the property may not be marketable1. At this early stage value can be impacted the most, because buyers and sellers do not have enough information to understand the overall situation. As time goes by, and estimates are obtained, there will be market data to analyze the impaired building. A “bell chart” developed by appraiser Randall Bell includes six elements of a “DC model”. They include the following: unimpaired value, the DC occurring or discovery, assessment stage, repair stage, ongoing stage and market resistance.
1 Randall Bell – Real estate damages an analysis of detrimental conditions (Appraisal Institute1999)
Comparable Sales Analysis - In the comparable sales approach method to value, unit prices or sales of other similar units will reflect the costs of repairs not yet completed. This is based on the “theory of substitution” where buyers and sellers are well informed about the costs of repairs, and compare various properties in the market when making a buying decision. Comparable sales of similar units are adjusted for differences in design, location, square footage and other features vs. the subject property. A paired sales analysis can be used to compare the sales to the subject and arrive at value conclusions based on “adjusted” comparables which will form a range of value in the comparable sales analysis. Thus, the comparable sales approach is a very good approach to determine market value with individual apartment units (technically, the word condominium is a form of ownership).
Stigma - There may be “economic loss” due to “stigma” because of detrimental conditions. Stigma has been studied and there are cases where the economic loss goes away with time, as once the condition is repaired, people forget about what occurred in some cases. Market surveys can also be used as supporting documentation for market data in the comparable sales or cost approaches to value. Note that the income approach is not usually developed in apartment/condominium appraising.
Champlain Towers Collapse - There is not yet enough market data in many real estate submarkets of south Florida to draw meaningful conclusions yet as condominium associations are scrambling to get engineers reports and estimates for repairs, if any. In the age of cellphones, Instagram and YouTube, numerous issues are being uncovered.
Recently some buildings in Miami have been evacuated due to structural issues that have gone unrepaired or ignored. It will be interesting to see the effect of list and sale prices of older concrete buildings as there are numerous older buildings and parking decks with structural issues due to degradation of concrete and lack of maintenance. There are also new buildings with some structural issues. The public is keenly aware of this and will want to know more about it in the future.
Regarding the Champlain Towers situation, I have been following engineers’ reports and information that has come out about the towers' collapse. The cause of the failure to the structure remains to be forensically investigated. However, the proximity of the ocean to the subject and intrusion of salt water into the concrete and reinforcing steel was the major issue. Also, the concrete pool deck was tied into the column system and later movement of the deck may have caused a chain- reactions with other structural supports that are vertical columns holding up the building.
A structural slab spanning the width of the property continuing underneath the building, was likely tied in with the vertical columns. This is typically done with “stirrups” and “dowels”, or bent rebar that allows for the lapping of rebar and joining with mechanical (wire) ties.The pool deck, which has deteriorated over the years and was the subject of the 40-year recertification process, failed first. The consensus is that this caused the columns to be compromised in the center part of the building, and cased the building to collapse.
It is known that the parking deck failed first, as there were three eye witnesses to the pool deck failing prior to the building collapsing. After the deck collapsed onto cars below it, the middle of the building collapsed followed by the east section, seven seconds later. This is known due to eyewitness accounts of at least three people (one in Unit 111, just above the column failure) who heard sounds prior to the collapse. They went to the lobby to complain to the security guard about it, and 911 was called. They also saw the parking deck failure, where it had reportedly dropped down to the lower level, well before the main structure came down.
Also, a couple swimming in the pool nearby to the north, heard noises and got out of the pool to investigate and take cell phone video of the parking garage and debris. Once the video was enhanced, one can see portions of what appears to be the pool deck structural slab failure, where debris dropped to the bottom of the parking garage. The film was taken at the entry ramp to the garage from the north side of the property (looking south). The video from the new Park 87 building to the south of the Champlain Towers shows the center of the overall building collapsing first, presumably after the parking deck failed.
It appears that the parking deck failure damaged several of the main support columns due to movement latterly of the failed deck, and that the columns were possibly "tied in" with reinforcing steel (“rebar”). These columns are located on the south facade of the middle section of the structure.
The southwest part of the structure on the west side of a "shear wall"stood, and it is reported that this part of the remaining building had larger column cross sections. It was later on demolished by rescue crews to make the area safer to work in. The slab had retained water, and planters were installed after the intial design. Later on, concrete pavers with a sand base were installed on that deck, adding to its overall weight and stress of the structural members. It appears that waterproofing of the deck was also inadequate. Renovated units in the buidling with marble and other heay items also may have added to the over buidling load.
An “investigation hole” was opened up in the pool deck and not covered-up. The piling system was reportedly “auger cast piles” (not allowed by the code today). It has not been ruled out that a subsurface conditions, such as a void or piling failure caused the deck to collapse.
That pool equipment room and pool in the DW corner of the prperty did not fail. The pool retained all of its water and the blue water can be seen in aerial photos well after the collapse. As of mid Augus the pool shell had not yet been demolished. The pool was constructed on the ground, and it was not elevated. Pools are “gunnited” with a sprayed-on concrete (sprayed on from with pressure from a concrete pump) with a higher compression (psi) "pump mix" used for the concrete. Also, the structural deck that first failed was not connected to it.
Collins Avenue remains closed to traffic as of the writing of this article. It may be that the engineers are concerned about the stability of the road and the weight of vehicles on it. There is a possiblity of a void under the remaining basement walls and subsidence that may have occurred that may be concealed.
Britt J. Rosen, CCIM, is uniquely qualified in both real estate brokerage, appraising and construction. He has been a full time real estate appraiser for over 30 years in south Florida, and is also a real estate broker and former state certified general contractor. Britt has as degree in Building Construction from the University of Florida (1980).