Page
Chairman Edward R. Roybal————————————————————— 1
John Paul Hammerschmidt—————————————————————— 2
Mary Rose Oakar —————————————————————————– 3

Chronological List of Witnesses

Michael A. Stegman, Deputy Assistant Secretary for Research, Department of
Housing and Urban Development——————————————————- 5
George Grier, consultant, the Grier Partnership, Bethesda, Md. ———————- 14
Kathryn Eager——————————————————————————— 24
Della Woodley——————————————————————————– 27
Catherine Shea——————————————————————————– 27
Dr. Leon Pastalan, director, Environmental Aging Program, Institute of Gerontol-
ogy, and professor, College of Architecture and Urban Planning, University of
Michigan———————————————————————————— 27
Giuseppe Cecchi, president, International Developers, Inc. —————————- 37
Jack Studnicky, president, JPS Associates———————————————— 40
Cushing N. Dolbeare, president, Low Income Housing Coalition——————— 47
John Martin, legislative consultant to the National Association of Retired Teachers
And the American Association of Retired Persons———————————— 54

APPENDIXES

“Traumatic Effects of Displacement and Relocation of the Elderly in Terms of Condominium Conversions” and, “Relocation: A State of the Art,” submitted by Leon A. Pastalan, Ph.D. ——————————————- 65
Case study of condominium conversion where average age was 74, submitted by Jack Studnicky——————————————————————- 88
Letter by John B. Martin———————————————————– 91
Additional material submitted by Giuseppe Cecchi, president, IDI (Inter- national Developers, Inc.)——————————————————— 93
“The Conversion of Rental Housing to Condominiums and Cooperatives,” a report submitted for the record by the U.S. Department of Housing and Urban Development, Office of Policy Development and Research——— 95

(III)

Mr. Jack Studnicky
President
JPS Associates, Inc.
3800 South Ocean Drive
Suite 200
Hollywood, Florida 33109

Dear Mr. Studnicky:

Thank you for appearing as a witness and testifying at our recent hearing on Condominium Conversion and the Elderly. Your testimony was a valuable contribution, not only to the short term goals of our investigation into this problem, but to the future benefits that will be enjoyed by the elderly.

I would like to commend you on your presentation of the positive aspects of condominium conversion and the various benefits to the buyer including your one-on-one interface with the tenants to allay their fears. Your various analysis and suggestions in the field of rental housing were well taken.

Your valuable testimony before our Subcommittee helped to assure an informative and successful hearing. Again, thank you for your efforts and participation.

Sincerely yours,

(Original signature here)

Edward R. Roybal
(June 02, 1980) Member of Congress
STATEMENT OF JACK STUDNICKY, PRESIDENT OF JPS ASSOCIATES

Mr. Studnicky. Thank you, Mr. Chairman.
I am president of JPS Associates, a real estate marketing firm. Currently I reside in Miami Beach, Fla., and I believe being in Miami gives me the opportunity, on a daily basis, of having immediately in front of me the opportunity of surveying the elderly situation as it exists. I don’t believe a single day goes by that I don’t see some 50 elderly people trying to move around in the buildings with wheelchairs and walkers and three-legged canes.
Many of these people, who have been induced to retire in Miami, were reasonably affluent. I believe the problem we should address today is not concerning the people who can buy but those who cannot afford to buy and are impacted by the condominium conversion.
In many cases developers have been maligned by the press and, to some degree, that is not a fair situation. I think many of the things we read in the newspapers are written by people who want to sell newspapers with something topical although it is not necessarily the way the situation is in reality.
I have provided you with negative articles in this regard which concern a project we are currently involved with. You will read that we treat these people like animals and we are throwing them out into the street.
In the history of my company we have never evicted anyone and never had any kind of situation like that. That kind of sensationalism gets people stirred up. I don’t believe the situation is as traumatic as the situation I witnessed here today.
The reason I came to testify before this esteemed group is that some alternatives are definitely required. I believe there should be subsidized shelter provided. Incentives have to be put back into legislation so the continued development of rental properties will exist.
In addition, I think there should be aid as relates to health-care facilities. We are converting a building where the average age is 74. I would say 30 percent of these people don’t belong in condominiums or rental property. They really belong in health care-facilities.
I would like to share with you a case study. The first time I walked through this particular facility I was with an associate. We felt sick when we left, recognizing the squalor these people were living in. The building was 13 years old. The carpet had not been replaced in 13 years. There were holes in the roof. The place was absolutely derelict. There is a health club which the tenants were supposed to be able to enjoy. I have never been in a Mexican prison, but I have heard stories about them and this place looked like a Mexican prison.
The structure is on beautiful Biscayne Bay in Florida. It had boat docks which were washed away many years ago. The tenants were paying very low rent. The apartments are spacious and rental prices in comparison to other rental units in the area, are below average. Many of the residents are elderly and a few are handicapped. It was a controlled building and the developer could not put money back into it so the building continued to become rundown.
There were derelicts and drug addicts sleeping at an old hotel next door, on the corner of West Avenue and McArthur Causeway. There was drug trafficking in the building. People would pull up their boats on Biscayne Bay and unload their drugs into the garage of this building. They had a security guard who had been there for many, many years. The reason he stayed was that he was also a numbers runner and this was his place of business.
Once we identified the problem, we recognized that it would be a difficult conversion. It would bring a tremendous amount of trauma to the people living in the building. We talked with the mayor of Miami Beach, Murray Myerson. He understood the situation and was very helpful in offering solutions to the problems. He suggested a meeting with the tenants. The mayor and I worked out a program which we thought would alleviate, to some degree, the problems these people would be confronted with. We were going to convert the building and there would be an investment of some $5 million. There would be no way that these people would be able to buy. In my discussion with the mayor we tried to come up with a solution to the problem.
I might also point out that the vacancy factor was one-half of 1 percent, so we had a very tight market. We developed the following plan: We would tell the people what the prospects were, we would tell them that the building was definitely going to be converted, and we would urge them to leave Miami Beach since it is being turned back to the luxury area it was some 15 years ago, and we would warn them that this would be the time for them to make their plans to relocate.
At the meeting the tenants became very disruptive, fighting among themselves, with leaders standing up and stating that they were going to stop the conversion. One of the local commissioners came in and told the people that they would not be put off the beach.
Frankly, I believe these people were being misled. In actuality the building was being converted and the people would have to leave and no one should make promises which are not true.
The meeting, to make a long story short, deteriorated. The plan that the mayor and I had, which we believed would remedy the situation, did not work. The meeting fell apart, and the press treated what had happened very, very poorly.
On February 5, 1980 the residents were notified that the building would be converted to a condominium. They were offered relocation expenses of $2,000 if they moved out within 120 days and $1,500 if they moved out after the 120 days but before 160 days. The response to the offer was overwhelming. Within 1 month after the notice 152 residents had found housing. Within 2 months approximately 243 residents had signed up to receive the relocation expense. The following is a breakdown of where residents are locating:

Less than ½ mi from Plaza West—————————————————————–62
More than ½ mi but less than 2 mi from Plaza West——————————————24
Other areas of Miami Beach———————————————————————-82
Out of the area (Broward County, out of State, seasonals returning home) and unknown
——————————————————————————–75
Fifty percent of the people have relocated without having to leave Miami Beach property.
In addition, a relocation coordinator was hired to assist the residents in finding other residence. The relocation coordinator spent many hours looking for apartments, counseling residents, advising residents of where to look, and personally taking them to look at apartments.
Many of the residents are elderly, looking upon Plaza West as their retirement home and intending to spend their remaining years there among friends. Change at this stage of their lives is very traumatic and frightening. Many have lived there since Plaza West opened its doors 13 years ago. Many depend on each other for help, and they are holding onto their last hope of independence. Many are widows who find it difficult to get out. They are frightened.
However, there is a bright side too. A few residents were able to move into subsidized housing and pay lower rent. Some of the elderly moved into hotel-type arrangements where maid service, meals, and linens are provided. A few were just happy to move and receive the $2,000 because they made the decision to relocate near their families out of State.
Many of the residents, once they made up their minds that there was no alternative but to move, accepted the conversion and were able to put everything in the right perspective.
We believe that 6 months notice of condominium conversion is sufficient to notify tenants. I think this case proves it. There is housing in Miami Beach. It may not be at the rental prices of Plaza West but rental apartments can be found. Some residents have had to pay under the table to rent apartments and some housing is below standard. Shortage of rental housing in South Miami Beach has been caused partly by the South shore development plan which prohibits new construction in a large area of South Miami Beach. Also, there is housing for seasonals only, as many places close when the season is over.
Condo converters should pay toward the relocation expenses of residents. Security deposits should be refunded when people vacate their apartments. Cities should be more involved with the residents of condo conversions. Not one person from the city of Miami Beach government came forward to assist residents or advise them where housing would be available. I feel that what many of them did was grandstand because of the traumatic issue at hand.
Retirement homes are desperately needed and should be built on a large-scale basis. There is a 2- to 3-year waiting period at most retirement homes. Some residents resent the Government permitting thousands of foreigners into the country while providing them with food, housing, and clothing and they receive no help. Not one organization or church has offered to assist residents here at Plaza West.
We believe, obviously, that some type of incentive financing should be offered to investors who purchase condo units and rent to elderly tenants.
[The prepared statement of Jack Studnicky follows:]

Prepared Statement of Jack P. Studnicky

Representatives, ladies and gentlemen: Thank you for the privilege of speaking before you. I will be delighted if my experience and expertise can contribute some light on the subject at hand.
My organization, JPS Associates, has been responsible for the marketing of thousands of condominium units in the states of New York, New Jersey, Virginia, Maryland and Florida. We have a staff of 63, and at present are engaged in the conversion of properties in the New York and Washington areas and four major apartment complexes in the Miami Beach/Hollywood, Florida region. You may know some of these: the Diplomat Tower, the Hallmark, Belle Plaza and Plaza West.
First: Let’s put the condominium and the condo-conversion in their right perspective in terms of their social and economic implications.
The condominium is a symptom of our time: Part of the continual change in lifestyle we are going through.
At the pace we are moving even the words “Condominium Conversion” take too long to say. A new word has been created for our vocabulary: Condoversion.
In the past 50 years we have gained more knowledge than in the previous 5,000 years!
Since the first South Florida condominium was built in South Miami Beach in late 1962, 74,000 have been sold in Dade County alone.
An indication of the acceleration in this field is that 62,000 were sold in the past decade.
The people who bought in the mid-60’s paid only an average of $10,000 per unit. Today, the average selling price is around $65,000 in Dade County. But it took hard-sell to convince people to buy.
Homes are still thought to be a better buy than condos, yet between March, 1979 and March, 1980 the average used condo appreciated 50% versus 21% for the average used home in Broward county.
All moderately-priced housing is now being built many miles west of the ocean. Lakes are even being created to substitute for the ocean.
Young people – single and couples – buy their homes and condos in this region since ocean sites are far out of their mortgage capability. This is also the location of low and medium priced rental accommodations; again, the waterfront being beyond the average rental range.
The elderly have been fortunate in having low rent for the past two decades due to depressed prices in Florida’s bust or boom real estate economy.
The condo-converter is a much maligned creature of our society, yet he is a benefactor. Setting aside the improvements that he performs on properties for now, let’s consider how his efforts benefit condo buyers.
It is often for the first time that these people are property owners because many people hesitate throughout their lives to purchase real property unless it is necessary. So, for the first time (or otherwise) they have been provided with a tax advantage – actually a tax shelter.
The condo owner’s purchase has eliminated considerable mental stress caused by fear of rent inflation. He even has a vote on any increase in the cost of amenities or maintenance.
The converter has provided the owner with a unit that has historically appreciated faster than inflation. He has provided him with an estate that he can will to his heirs – a positive psychological factor as people get older.
And them, there is pride of ownership that goes with owning your own place.
Yet the condo converter is more often portrayed in a negative light.
This is due to an overrepresentation by the press, tenant association and elected officials, of the fears, anxieties and hostility of apartment dwellers.
We have encountered, and so have other developers, actual viciousness on the part of some tenants’ associations. They intimidate other tenants if they go near sales office to get the true facts. Their ploy is to harass the management through deliberate misinformation and unsubstantiated rumors about the developer’s intentions. Their objective is to force extra concessions or forestall the conversion entirely by causing financial hardship on the developer.
Currently embroiled in this controversy are the Diplomat Tower and Hallmark on south Ocean Drive in Hollywood, Florida. They were purchased by the Daon Corporation, a California-based company, which was surprised to uncover a virtual vendetta against the conversion since their plan involved renovating and upgrading older buildings with concessions to the tenants to encourage them to remain.
To illustrate, this is a statement that appeared in a recent Diplomat Tower Tenant Association Newsletter. “The Daon Corporation has the right to retain control of the Condo Association forever and has a lien on all units, which means a cloud on the title.” This is outrageously false and we even make sure they have title insurance to protect their title.
Their statements to the press are equally incorrect and inflammatory. For instance, they stated that the average purchase price of the condos was $170,000 with the buyer’s annual payment being $27,500 on a 15 percent interest rate mortgage. Actually, the average apartment is priced out at about $130,000 with a 13 ¾ percent mortgage, with annual payment of only $14,600.
We are not the only organization in Florida under uncalled-for attack. A Canadian group has just announced its plan to convert The Roney Plaza, one of the largest in South Florida. Although they are not obligated by law to do so, the new owners will be letting tenants remain there up to 2 ½ years. While this is because there is no overriding economic necessity for rapid conversion, it is exceptionally generous. Yet a Roney resident immediately announced that he is organizing a rally and rent strike against the conversion. The statement to the press is that they are protecting “the old, the sick and the infirm.” It sounds like they consider the luxurious Roney Plaza to be a county hospital.
We have found that the only way to avoid this turmoil, if we are given half a chance, is through a program of communications and mutual understanding. A key point to remember in this two way communication is that it may be your property – but it is their shelter. Until the developer appreciates this viewpoint, he will have a problem.
We have achieved considerable success through a one-on-one interface with the tenants to alleviate their fears. We form a team who research the region for alternative housing, either lower-price condominiums or rental units. Situations vary but in many cases we will establish a moving fund – as much as a quarter of a million dollars in order to relieve hardship – to enable tenants to move to new shelter. We have provided an allowance for complete remodeling, including new appliances. The tenant is given thousands of dollars in mark-down from the new selling price if he decides to buy. If he prefers to move, we often offer large cash incentives to accelerate the date of moving, which many take advantage of. On the other hand, we have extended leases to six, to nine, and to 12 months to prevent distress.
These factors have gone a long way to relieving anxiety and in the final phase of the rehabilitation, we have actually received commendation for our efforts.
Our experience has pointed up the critical need for more affordable housing. If more rental units were available, the pressure would be relieved on the condominium converter.
This is where the Federal government must take its responsibility.
In a misguided action, the incentives to develop rental properties were eliminated. The construction of new rental buildings has declined markedly ever since a change in Federal Tax Laws was made in 1976, reducing the tax advantages.
Prior to that, there had been a constant flow of investment money coming into rental properties. Before the tax law change, investors could shelter larger portions of their income by investing in new rental property. The IRS permitted an accelerated depreciation allowance as a tax deduction.
The basis for the allowance was logical; the apartment declined in value each year from wear and tear, so the investment declined. Therefore, a tax deduction was in order.
This also had a beneficial cumulative affect. When the depreciation was used up, the investors would sell the building and buy another rental building to start a new depreciation schedule. This meant the builders were busy providing new buildings. Thus the investment money kept flowing in for new rental construction.
Also crucial to this cycle, rental property developers were able to deduct interest paid on their construction loans in a single year. Now the interest must be amortized over a number of years, reducing the upfront money available for more rental construction. It also reduces the amount of the deductions, further cutting back the incentive.
The Government is also responsible for encouraging the sale of condominium buildings for conversion. If the owner of the condo converts it himself, the IRS classifies him as a dealer. He is taxed on the profit at the ordinary income rate.
However, if the owner sells to a developer, the latter is taxed on the conversion profit on the basis of capital gains – a lower tax rate.
The Government is constantly talking about rent controls. This is a serious detraction to the sale of rental housing.
It is very noteworthy that the Board of County Commissioners of Dade County, 15 days ago, passed a resolution asking the Federal Government to enact the following legislation: Amend the Internal Revenue Code to Increase declining balance depreciation to 300% taxed at capital gains rate, if the property is held for more than one year; that construction loan interest be permitted to be deducted as an immediate expense rather than capitalized over 10 years; and savings and loans be permitted to issue longer term mortgages and graduated payment mortgages.
Rental controls must be avoided because the low return on investment keeps development money away. In New York, owners have abandoned some 60,000 rent controlled units because of increased operating costs.
Municipal governments also play their part in causing condo housing problems. Putting a cap on density may be an environmental control, but it practically eliminates new multi-family buildings in the area.
Some action is being taken in this direction. California has passed a statewide zoning law that features a “density bonus”. Dade County Commissioners have a similar ordinance under consideration to encourage rental housing development during periods of short supply. It would grant a 20% residential density bonus for rental housing on land where it would not normally be permitted. They just passed an ordinance to encourage the construction of rental units in the vicinity of proposed rapid transit stations, centers of employment, schools, parks and commercial areas, and other activity centers.
A condo conversion market typically begins when rental building owners cannot keep step with rising operating expenses and their investment is providing too low a return.
They cannot, or are not willing to, spend the extra money needed for rehabilitation of properties – in many cases just to maintain adequate housing. Often a large injection of capital is required for improvements. The rental apartment owner is unable to pass this cost on to the renter. In terms of upgrading the environment in the area of properties, the condo converter is a major benefactor of our society.
Miami Beach is a case point. It has been going through the classic concentric circle life cycle. The area that was once the center of attraction has degenerated as people gravitated north to the newer hotels and condominiums. This southern area is due for rehabilitation. People who went there to retire now find themselves in an undesirable environment. And the circle keeps moving northward as the years go by.
As an example:
We are revitalizing Plaza West, a 347 unit condo conversion that was a luxurious apartment house in Miami Beach. The developer is rebuilding the docks, updating the building’s façade and pool area, creating a new landscape and upgrading the units with complete renovations and appliances. These renovations and improvements are estimated to cost $5.5 million.
These beneficial contributions to society are ignored or overlooked.
Let us look at some other facets of the Florida situation: although the State has preempted the regulation of condominium conversions, a number of municipal governing bodies have been making laws to restrict them. This Government intervention caused a flood of apartment owners to register future condo conversions before the end of the year. However, the State finally took matters into its own hands, enacting a law on May 1st, which permitted tenants in a building for six months to stay nine months without an increase, and a year if the vacancy rate is less than three percent.
There were 16,000 apartment units converted in Florida in 1979, but the impact was not as great as it might appear.
Some 40 percent were purchased by tenants, 29 percent moved from other rental apartments, freeing, you will note, that many apartments – 4,747 – for new tenants or displaced persons.
Of the 60 percent who did not purchase the condos, 8 out of 10 moved into rented apartments. The shortfall represented one-half of 1 percent of the total apartments in the State. Again, of the 60 percent not buying, only 22 percent were 65 years or older.
Further, of the persons who moved from the condominiums being converted, 12 percent actually purchased condos in other buildings, 8 percent purchased homes, and 2 percent rented homes.
Our personal experience with Plaza West, mentioned previously, still in the process of conversion, indicates 18 percent of the tenants have located less than one-half mile from their previous apartments; 24 percent have settled in other areas of Miami Beach.
It is interesting to note that a number of the tenants really underwent no hardship in that they turned out to be “snowbirds” who owned their own places “up north”.
Despite the registration rush at the end of the year, the pace of conversion in 1980 has even been as hectic. To date this year in Dade County, conversion registrations reached 5,310, 1,100 more than were filed in all of 1979. Broward County filing so far in 1980 covered 2,964 units, 200 less than all of 1979.
These two counties have 44 percent of the State’s rental apartments – over 250,000 rental units.
You have all heard of the vast influx of foreign or offshore funds pouring into southern Florida. Much of this money is going into apartment buildings and condominiums, making these a speculative commodity. This influence aggravates the situation for people buying retirement shelter since competition raises prices, but the area is experiencing a boom which is a hedge against recession.
I would like to point out that we should not lose sight of the fact that retirees are an important economic factor. In Broward County alone, they account for a total revenue of over one billion dollars in retirement income: The equivalent of a very large industrial payroll. If anything should happen to this revenue, it would seriously affect retail trade and the service industries, particularly.
One of the latest trends in attempts to assure rental housing is the proposal by local governments that they have the first right to acquire empty condos after the building’s condo association has refused to purchase the units. This, of course would put municipal governments in the housing business. We have here a case of nature abhorring a vacuum: If action is not taken by the Federal Government, someone else will step in.
To stimulate construction and rehabilitation of rental housing, Dade County commissioners moved recently to create a Rental Housing Authority empowered to (1) provide liaison between developers and the county; (2) promote construction and financing of rental housing, (3) study the market, (4) serve in an advisory capacity to the county, and (5) promulgate rules and by-laws necessary to implement its powers. Should the state enact legislation creating a statewide rental housing authority to finance rental housing, this Dade County authority would be ready to function for the county.
However, I feel that this is a national problem and the Federal Government has the responsibility for subsidizing rental housing for the elderly. Construction of health care facilities for the aged should be given priority. Large numbers of senior citizens need better attention than they get living in condos. And finally, condos on Miami Beach are not the answer – except for the affluent.
I hope my remarks have helped to add some light to your deliberations. Thank you.

[See app. 2, p. 88 for additional material submitted by Mr. Studnicky.]
Mr Roybal. Thank you, Mr. Studnicky.

NEW YORK WASHINGTON MIAMI
(Corp. Logo Inserted Here)
JPS
Associates
Incorporated

November 17, 1980

Honorable Edward R. Roybal
U.S. House of Representatives
717 House Office Building, Annex One
Washington, D. C. 20515

Dear Congressman:

I’m happy to respond to your request for recommendations on condominium conversions. Here are some further observations.

The fact that there is sufficient demand for converted condominiums to create a problem worthy of your committee’s attention attests to the need and popularity of this type of housing. In short, if the market did not support condo conversions, there would be none.

Condominium ownership means a chance for many Americans to step off the inflationary elevator and to live free of rent increases.

Ownership entitles the buyer to tax advantages enjoyed by many others in our society and condo owners enjoy pride of ownership.

On a community level, condominium conversions achieve what billions of dollars in federal programs have failed to achieve – the revitalization of America’s cities. As a rental, many properties do not generate sufficient income to cover the costs of proper maintenance, let alone major renovations.

Condo conversion, on the other hand, typically means a major overhaul of the dwellings and a boost to the neighborhoods. As a condominium, the properties are under the care of owner occupants who are less likely to allow the property to decay.

Addressing the heart of the problem, which is one of assisting the elderly and the poor who are unable to purchase and who are most negatively affected by the conversion, we see, in summary, four possible remedies: purchase assistance, lifetime leases, state buy-outs, and relocation assistance.

Finally, one must recognize that the taxing authorities receive windfall tax revenues as a result of conversion. Tax experts estimate that every conversion increases property taxes by a minimum of 50 percent.

Sincerely,

(Signature here)

Jack P. Studnicky,
President, JPS Associates

SUITE 704, 777 BRICKELL AVENUE, MIAMI, FLORIDA 33131 (305)371-6444