TGIF. This is The Shake 🤝 : the weekly newsletter quenching your real estate thirst every Friday morning.

Here’s what we're dishing up this week:

• Condo Deconversion Storm 🌀 

• Commercial Corner: Proptech Monopoly 💻️ 

• Weekly Giveaway 🎰 

MARKET RADAR

CONDO DECONVERSION STORM 🌀 

The perfect storm is brewing in states like Florida - and no, we’re not talking about hurricanes.

Condo deconversions are trending as a lucrative opportunity for well-capitalized developers to take advantage of.

Since 2012, over 360 condos containing more than 26.5k units have been approved for termination in Florida alone.

But terminating a condo isn't a simple process.

It can take anywhere from 75-100% approval from all unit owners to agree to a sale. Plus, a 2017 provision added that 5% of owners can block the deal if they oppose the sale. Making the hit rate very low.

Although if a deal does happen, it can be fruitful for both parties.

In 2021, developers bought the Carlton Terrace building for a cool $130M - paying owners a 50%+ premium on their units. One owner bought a unit for $400k in 2020 to later be bought out for $1.5M in 2021 💰

Condo Deconversions aren’t new, but one recent event pushed this trend to gain more traction for developers.

The tragic collapse of Surfside’s Champlain towers in 2021 caused a ripple effect to happen:

• Regulators are now focused on pushing more reforms on legacy condo buildings with years of deferred maintenance to ensure they are up to code 🛠️ 

• Condo owners (1960-80s builds) are being hit with a snowball of costs - deferred repairs, rising insurance and property taxes, and 40-year structural recertification 📜 

• With little to no oceanfront inventory available, there is a massive appetite for developers to offer a premium to moderately priced condo owners 🤑 

A big challenge is the bid-ask spread has widened significantly since the pandemic due to the rise in overall demand and owners sticking to “unrealistic” prices.

But pain is beginning to settle in. New state legislation passed mandates to ensure safety reforms. Going into effect in 2025, older buildings will have to undergo routine inspections, immediately rectifying maintenance issues that previously were being deferred.

Unorganized associations will be taken by surprise if they don’t start building up reserves asap. Those unable to do so will become a target 🎯  

Naturally, this will trickle into more paperwork for conventional buyers to obtain in order to purchase a unit in an aging condo.

And if the building is no longer ‘up to code’ by these new standards, it can mean owners are stuck with a much smaller buyer pool (cash only).

Slowly but surely, the multitude of factors affecting aging condos with low reserves will take a toll on owners. There’s truly nothing worse than paying off one special assessment only to get hit with another one shortly after - ask me how I know 🙃 

It can feel like a never-ending money pit to owners. And sooner or later, they will take the premium buyouts and move on.

PROPTECH MONOPOLY 💻️ 

Chances are many people reading this have seen The Social Network, the story of Zuckerberg staring Facebook from his Harvard dorm room in 2004.

It’s a classic story of Zuck having an amazing vision and working tirelessly on his new website idea rather than focusing on his ivy league degree.

But what if I told you that there was an eerily similar story that took place at a real estate tech company, almost two decades prior.

No, this company doesn’t have a market cap of $530 billion like Facebo–I mean Meta. (Still can’t get used to that sh–), it’s closer to $27 billion.  

That being said, this company continues to grow and acquire constantly. It seems like every time we turn around they’re launching or buying another company.

That’s right (the 3 of you who probably got it) it’s CoStar!

CoStar Group Inc (NASDAQ: CSGP) was founded by Andy Florance in his Princeton dorm room in 1987.

But what is CoStar and how are they becoming a monopoly?

Let’s go back to the market cap comparison. Most likely the least recognizable of the 4 brands from the poll, CoStar actually blows the other companies out of the water:

Market Caps of each Proptech company:

• Zillow ($10 Billion)

• OpenDoor ($1 Billion)

• Redfin ($8.3 Billion)

• CoStar ($27 Billion)

CoStar does so many different things we could probably write 10 newsletters on it, but more than anything, it collects a massive amount of real estate data.

CoStar's extensive database includes information on over 100 million properties, including sales and lease history, tenant information, property details, and more. Its clients include real estate brokers, investors, lenders, and appraisers, as well as corporate and government entities.

I’m not a statistician, but I would say somewhere around 99.99969% (nice) of all commercial real estate brokers use CoStar to help them transact.

From leasing brokers to capital markets experts, CoStar provides an excellent amount of information to help the CRE brokerage community get deals done.

The memberships are pricey, subscription-based, and cost thousands of dollars a year (per broker)! Now imagine a team of 100 brokers like some of the larger shops have in each city.

Not to mention, CoStar is like big brother when it comes to dual authentication - making sure no one is sharing their account (take notes Netflix).

They actually have it in their terms of service that if a user is caught sharing their account they can be permanently banned, which would effectively end a CRE professional’s career.

I swear that little f-ing star is everywhere!

CoStar also owns over 20 other companies, many of which you’re probably familiar with.

To name a few: LoopNet, Apartments.com, Ten-X, BizBuySell, Land.com, LandsofAmerica, LandWatch, Showcase, Realla, HomeSnap, and Houses.com are just some of the many businesses that they currently own.

But wait, there’s more!

CoStar isn’t even close to being done yet. Looks like Andy Florence wants a movie about him, too. (JK, but could you imagine?)

WEEKLY GIVEAWAY 🎰 

Together With Closing Packs

To end each edition, we will be sending one lucky subscriber a special item!

This week’s item is an OrbitKey.

How do you win?

We are going to post a closed transaction with some high-level details and whoever can guess the right sale price, wins.

If nobody gets it right, the closest guess wins. If two people get it right (screw us right?!) we will hook you both up!

Let’s kick it off 👇️ 

Built in 1969, this palm beach county condominium contains 40 units on a prime oceanfront lot. It was recently terminated and bought out by a developer.

How much did the developer pay for it?

Done deal 🤝 If you enjoyed this week's edition, don’t be selfish — share with a friend!

^{DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.}