Hurricane Ian brought unprecedented storm surge and wind damage to Naples, Bonita Springs, Marco Island and Fort Myers Beach, leaving an unrecognizable footprint in its wake. And while the focus in the short term is on practical needs: finding housing for those who need it, restoring essential services, attending to the elderly, other issues also warrant attention. Residential and commercial structures sustained catastrophic damage, leaving thousands of owners and residents with questions, such as:

• How can I afford to rebuild with rising construction costs and escalating interest rates?

• Will my insurance carriers honor and grant additional coverage in a tightening insurance market with continuing premium increases?

• Did I bind enough insurance based on flood and/or wind damage to rebuild based on FEMA and reconstruction estimates?

• Will FEMA limit our ability to rebuild based on the reconstruction costs relative to the market value of the structure?  Will our building or home be condemned? How does zoning limit my ability to rebuild?

• Can I qualify to borrow funds with rising interest rates?

• For condominium and HOAs, are there sufficient available reserve funds in light of recent condominium legislation requiring stricter budgeting and use of reserves?

With Varnum attorneys resident across Southwest Florida, we have a personal appreciation for the tough decisions that many of us are navigating. Our team focuses on condominium law, real estate development, real estate acquisition and finance solutions, and construction law and is equipped to provide actionable legal and business advice as we all navigate the realities of Hurricane Ian.

Among the realities that Floridians are facing is that property damage will necessitate creative real estate solutions. Real estate investors looking for new development opportunities may now be a solution for many condominium associations, homeowners and business owners who would prefer to sell their property rather than navigate flood regulations, FEMA guidelines, insurance coverage disputes, and condemnation.

For example, consider an older low-rise condominium that sustained extensive flood damage to the lower units and the cost of reconstruction will exceed FEMA allowances in a flood zone.  When the cost to repair damage exceeds 50 percent of the fair market value of the condominium building, you might be denied a permit to commence repairs when the property is located in a special flood hazard zone. While not technically condemned, this could result in a practical condemnation of the building. Condominium buildings could also face actual condemnation by local officials due to safety concerns regarding structural integrity or other issues.

Even if restoration is preferred by the owner, the financial reality is that flood policies have coverage limits that may not cover the increasing construction costs (especially in coastal areas) consistent with current building codes. And with maximum flood coverage limits of $250,000 for the building and $100,000 for contents, it would hardly allow for major repairs or replacements for many properties. Under the Florida Condominium Act the cost to repair a large portion of the condominium is a common expense (whether you sustained damage or not). Therefore, many owners will see a greater economic benefit of terminating the condominium property rather than pursuing and paying for a multi-year reconstruction. Many owners will prefer to terminate the condominium and shift the burden to investors and real estate developers to deal with redevelopment.   

However, these coastal homes are unique and sentimental. The decision to rebuild in order to protect the integrity of historic Naples, Bonita Springs, Marco Island and Fort Myers beaches may be paramount for many residents. In this situation, condominium associations and landowners should seek counsel regarding procuring proper financing and assessments, construction contract negotiations and approvals, and adherence to condominium documents and local ordinances.

Many property owners in Southwest Florida will consider some or all of these questions in the coming weeks and months. And each property requires a unique analysis and solution with individual land covenants, condominium covenants, repair estimates, and insurance policies. We stand ready to assist.