Two Roads’ Edgewater condo buyout at impasse: What could happen next?

It’s been nearly a year since a Florida appellate court entered a ruling in favor of the eight holdout unit owners at a bayfront condo in Miami’s Edgewater, putting the developer’s plans to build a luxury Edition Residences project in limbo.

The developer, Miami and West Palm Beach-based Two Roads, and the holdout unit owners at Biscayne 21 still have not reached an agreement. The holdouts recently sought $51.1 million from Two Roads, as the firm waits for the court to decide whether it will grant a rehearing.

In the meantime, the developer is on the hook to pay mounting interest on loans tied to the bulk buyout completed in 2022, as it presells luxury condos at its planned Edition, a Marriott International-branded development. Two Roads launched sales of the first of three planned towers, a 185-unit, 55-story building, with unit prices starting at $1.7 million three years ago.

The final outcome of the case could set a precedent for condo buyouts targeting buildings with similar language in their condo declarations, experts say.

The timeline

The bayfront 13-story, 192-unit Biscayne 21 building at 2121 North Bayshore Drive, built in 1964, in Miami now sits vacant.

It’s been 33 months since Two Roads paid about $150 million for the majority of units at Biscayne 21. The developer financed the purchase with a $45 million mezzanine loan from Lionheart Strategic Management LLC, the asset management affiliate of Fisher Brothers, and a $105 million senior mortgage from Bank OZK.

It’s been 21 months since the holdout unit owners filed their lawsuit. They are Angelica Avila, Nicolas Bello, Maria Beatriz Gutierrez, Franah Vazir-Marino, Robert H. Murphy, George Garcia, and two couples, Lazaro Fraga and Jacqueline S. Fraga, and Jeffrey Ulman and Shari Ulman.

Their complaint alleged that the developer-controlled condo association illegally amended the condo declaration to lower the requirement for a condo termination to 80 percent of owners, from 100 percent. A condo termination is required to tear down a building and redevelop the site.

Last March, the owners notched a major win in their case when the Third District Court of Appeal reversed a lower court decision that had denied the holdout owners a temporary injunction. The lower court had determined that amending the termination requirement did not “alter” the voting rights of the unit owners. The Third DCA disagreed with this, and said that amending the vote threshold did alter the unit owners’ voting rights.

“By requiring a unanimous vote for termination, the declaration originally gave every unit owner an effective veto over any termination plan, which would be lost if the amendments at issue here were enforced,” appeals court judges Ivan Fernandez, Fleur Lobree and Alexander Bokor wrote.

Two weeks after the the judges entered their opinion, Two Roads, led by Taylor Collins and Reid Boren, requested the court grant the developer either a rehearing, or a rehearing en banc. The latter means that all judges in the Third District would hear the case. Two Roads also vowed to take the issue to Florida’s Supreme Court — if the court decides to hear the issue.

The company has the support of the most powerful people in the industry. Last April, South Florida’s most prolific condo developer, the Pérez family’s Related Group, teamed up with the Defortuna family’s Fortune International and the Dezers’ Dezer Development. The three companies submitted a brief requesting that the court reverse its opinion.

Their attorney, David Weinstein of Greenberg Traurig, wrote that each of the three firms owns a majority of condos throughout the state with “declarations, voting rights, and voting thresholds similar to those at issue.”

“If this court’s opinion stands, the developers’ interests in those condominiums unquestionably will be harmed, such that the developers have a substantial interest in the outcome of this appeal,” Weinstein wrote.

He also wrote that from a public policy perspective, the effects of the appeals court siding with the remaining owners “extend well beyond this case, accelerating the decline of aging condominiums throughout Florida, and impacting their redevelopment, the housing market, the tax base, and the broader economy.”

Condo buyouts are notoriously difficult, and it’s nearly impossible to secure 100 percent buy-in, experts say. But it’s unclear if uncertainty surrounding the ruling has held up other deals during the past year. Developers are also dealing with high interest rates and construction costs, a possible oversupply of planned projects, and other legal challenges to buyouts.

In January, the holdout unit owners at Biscayne 21 demanded $51.1 million, or about $6.4 million per owner, according to a copy of the letter sent to The Real Deal by Amanda Bevis, president and owner of Tallahassee-based Red Hills Strategies.

Bevis, who said she received a copy of the letter from a third party, did not respond to a question about whether she was hired by Two Roads. Her firm focuses on influencing public policy through communications and media relations, according to her LinkedIn.

The demand letter, which expired last week, appears to have gone nowhere.

Two Roads made settlement offers to the holdout unit owners in December that would be paid out in installments, including a deferred payment to be funded by future Edition sales and contingent on the Third DCA not reversing its prior ruling, according to a source. The upfront payment offered was $20 million, compared to the $51.1 million all-cash, one-time payment the unit owners sought in their confidential letter submitted in January. The source said that Two Roads “repeatedly urged the plaintiffs to make a counteroffer,” and suggested the developer then leaked the $51.1 million offer.

Attorney Glen Waldman, who is representing the unit owners, declined to comment on the letter.

Reid and Collins from Two Roads referred TRD to their attorney, Jason Gonzalez. Gonzalez called the demand “deeply disappointing to see someone abusing the process in this way.”

An uncertain future

It’s anyone’s guess what the Third DCA will do, though attorneys say it’s unusual for the court to take this long to respond to the rehearing request — whether it plans to grant or reject it. And even after it responds, other issues in the lawsuit still remain to be litigated.

While more than 90 percent of Biscayne 21’s unit owners sold their units and moved on, the remaining owners still technically own their units. They too are in limbo, and some hope to move back into the building, which has been shut down for more than a year.

Meanwhile, Two Roads’ carrying costs are mounting. In a filing submitted to Miami-Dade Circuit Court in April, six months of carrying costs totaled more than $9 million, mostly interest. The $45 million loan from Fisher Brothers’ affiliate, with a 16.82 percent interest rate, was set to mature in September of last year, a separate filing shows. The interest likely increased at that point. Fisher Brothers did not respond to requests for comment.

Two Roads’ interest rate on Bank OZK’s financing has nearly doubled. When the developer closed on its bulk purchase in 2022, it had a 5.42 percent interest rate, according to a court filing that shows loan activity until April of last year. In March, the developer’s rate shot up to 9.77 percent.

Two Roads made its 12th loan draw — about $2 million — a year ago, and two months later, in April it owed Bank OZK an extension/modification fee of $515,534.75. The principal balance at that time was $100.2 million.

Two Roads’ co-managing partner Collins said in a statement to TRD that Two Roads’ lenders “have been working with us on any necessary extensions and continue to stand beside us in full support.”

If the court continues to side with the holdout unit owners, it’s unclear how Two Roads will move forward with its development plans for Edition Residences. But if the Third DCA grants the developer a rehearing of any kind, it could put some of the holdout unit owners’ leverage in jeopardy.

Waldman, the attorney representing the holdout unit owners, said the Third DCA “got it right” with its March 2024 opinion.

“I feel terrible for my people who have been thrown out of their homes,” he said, vowing to “go after [Two Roads] like there’s no tomorrow.”