Condominiums: A Tool for Commercial DevelopmentNovember 08, 2005
The use of condominiums as a form of ownership and development tool has exploded in recent years. The popularity of condominiums is more than just the cyclical resurgence of a past trend. Property owners and developers are using condominiums in new ways that successfully address financial, control and design goals. Creative attorneys help property owners structure the development to meet their clients’ goals.
Thirty years ago, the only image a condominium evoked was an apartment-like building. No wonder the use languished for so long in Wisconsin. Today, condominiums appear in almost every community in southeastern Wisconsin and are spreading rapidly throughout the state. Many of these condominiums are not your traditional condominium structure. The modern condominium is being designed to accommodate a variety of circumstances and takes many shapes. Here are just a few:
- Office Buildings
- Office Parks
- Commercial Parks
- Residential Homesites
- Hotel Condominiums
- Storage Buildings
- Duplex Buildings and Townhouses
- Multi-Use Facilities
This flexibility of design allows the use of condominiums with diverse types of properties, even when a traditional development may not comply with municipal guidelines or other regulatory rules. For example, financial institutions that are subject to regulatory restrictions against speculative real estate investment may purchase a commercial condominium unit for their own use even if contributing to the same development as a joint venture participant would be a regulatory concern. The condominium structure allows the financial institution to own real estate and locate branches in highly coveted mixed-use buildings as an alternative to leasing.
Sometimes, condominiums are used to sell properties that might otherwise be considered a white elephant. An industrial property with numerous buildings on a several acre parcel, or one large facility that is no longer fully utilized, could be difficult to sell as a whole. Alternatively, there may be market interest in the individual buildings, or smaller portions of the larger facility. Leasing is one option; however, the lease market may be slow, and the owner may not want the management responsibilities of being a landlord. The condominium structure offers the owner a solution to selling a difficult property while allowing buyers to acquire a unit without the burden of purchasing the entire site.
In some cases, developers choose the condominium structure for their development because it allows the developer to realize a financial gain more quickly. For example, if a property owner builds a stripmall and leases the storefronts, the owner makes a large financial investment in the acquisition of the land and construction of the building, parking lot and other improvements. The return on the investment is made over time in the form of rent payments from the tenants. With a condominium, each storefront unit can be sold and the return on the investment can be made more rapidly. In addition, the hassle and time-consuming role of being a landlord is eliminated with a condominium.
Another advantage of the condominium form of ownership is developer control. Although the Wisconsin Statutes impose specific limitations on a developer’s control of the condominium association, the condominium structure, if properly drafted, can allow a developer flexibility in controlling certain aspects of the project, sometimes even after all the units are sold. Certain amendments to the condominium declaration and uses of the property can be limited or modified by the developer through appropriate drafting tools.
The popularity of condominiums has prompted some property owners to convert existing properties into condominiums. Conversion can be a successful endeavor for the right property. Property owners should be aware that Wisconsin law imposes additional requirements on certain conversion properties such as the requirement to provide notices and purchase opportunities to existing residential tenants, as well as providing building reports and engineering documents in the disclosure documents. These laws must be complied with carefully or the project’s success could be jeopardized.
Condominiums continue to be a favorite development tool of developers because of the many advantages the form offers. The experienced attorneys at Godfrey & Kahn, S.C. can help developers make the most of their condominium project. If you have any questions regarding the information presented in this article, please contact any member of the Godfrey & Kahn Real Estate Practice Group at (414) 273-3500.