Wind by Neo and Latitude on the River Sue Manufacturers for Faulty Fire Sprinkler Systems – What Does This Mean?
As reported by the Miami Herald, at least two condo towers in the Brickell area have been discovered to have faulty plastic pipes in fire sprinkler systems that protect the high rise towers. Lawyers for the condominium associations at Wind by Neo and Latitude on the River (pictured above) have filed a federal lawsuit against Lubrizol, the Ohio-based sprinkler system company that installed the systems during the development phase of the buildings.
According to the lawsuit, the plastic pipes were made of CPVC and contain a resin that breaks down when combined with other common building materials. This causes leaks, cracks and a loss of pressure. Just a few months ago, residents of the Wind by Neo woke up to water pouring into their apartments, damaging several floors of the 41 story tower. More dangerous still, the subpar materials could cause the fire safety systems to not function properly in the event of a fire. According to the lawsuit, an engineer for Lubrizol warned the company of the issue after seeing damaged pipes from buildings across the country. The company officials decided at that point to not disclose the defects. Officials at Lubrizol have not yet commented on the issue.
So what happens now?
Attorneys for the building are estimating the cost of repair to be in excess of $50 million – $70 million at each building, and the issue could spread to other developments built around the same time as well. The issue could grow as large (if not larger than) the Chinese drywall issue of recent years. Remediation is lengthy, costly and complicated.
While the attorneys, condominium associations and manufacturers sort the issue out, what happens to the residents of the 943 apartments in the two towers? The Wind (located at 350 South Miami Avenue) has 489 apartments across 41 floors while Latitude on the River (located at 185 SW 7th Street) has 454 apartments across 44 floors. It has not been announced yet whether the residents will be able to remain in their homes during the remediation period, but we imagine that insurance companies would take issue with the risk.
Until the issue is resolved, lenders will not issue mortgages for apartments in the affected buildings, driving the prices down as cash-only purchases will be required. The extent of this adjustment is to be seen, since many of the resales in the area are already cash-only purchases.
At Latitude on the River, over the last 90 days, there have been 5 total closed sales with 1 being financed. The financed purchase was for a 1 bedroom apartment (Unit 1908) at $332/square foot. The average of the 4 cash purchases was $328/foot.
At Wind by Neo, there were 7 total closed sales in the same time period with only 1 being financed. The financed purchase was a 2 bedroom at $375,000 or $349/foot. It was Unit 2803. The average for the 6 other purchases that were cash came in at $341/foot.
Right now, it seems that only a small discount is rewarded to those who are buying without mortgages, but we are curious to see what will come in the future as the remediation gets underway.
Back in 2012, Latitude on the River was faced with a similar class action suit when Chinese drywall was discovered in a handful of the apartments. During that time, the market was on a steady increase after the crisis of 2008 and the building continued to increase in value along with the other properties in the neighborhood, albeit at a lower price than properties with similar layouts, views and amenities. Given that the average price per foot of resale properties over the last 3 months in Brickell is $432/foot, it seems that the trend continues.
We will continue to watch the affected buildings as more details come and will be available for anyone who would like to speak about individual scenarios.