The Florida Condo Conversion Reversion
In the latest sign of the softening Florida housing market, a Fort Myers real estate developer is having a change of heart about turning apartments into condos. The trend of converting apartment complexes into condominiums has consumed the state and urban areas around the country, but the News-Press reports that in today’s climate, that could turn around fast.
“The great conversion reversion is on,” said Jack McCabe, a housing market analyst based in Deerfield Beach, Fla., who is consulting with the owners of 27 projects around the state who are considering switching back. “Now that the market has changed, they’re not able to sell as quickly, there’s a mad scramble to revert back to apartments. Some are having a hard time getting financing, and a lot of guys right now are in between a rock and a hard place.”
In Lee County, companies have purchased about 5,500 apartment units in the past two years with plans for condo conversions. As few as eight major apartment complexes are rental communities likely to stay that way. Yet, in recent months, the market for reselling converted apartments has dried up while rents have gone through the roof.
Tenants of the Promenade, at Summerlin Road and Cypress Lake Drive in south Fort Myers, got fliers from managers last week saying to literally “Stop Packing,” and urging them to renew their leases. The flier states that the complex will remain a rental community, and that the people who have given notice and would like to stay are welcome to do so. Owners of other complexes have already signaled that the Florida condo market isn’t strong these days.
“It’s happening because we had seen explosive sales in condo conversions over the past couple of years,” McCabe said. “They’ve been attainable and affordable for home ownership in South Florida. But now the speculators have left the market and that’s taken a huge chunk of the demand part of the market.”
Promenade is one of the first to make the change, said Jim Garinger, a commercial real estate agent with Colliers Arnold Southwest Florida.
“The time’s not right with the interest rates going up to go to a condo conversion,” he said.
For one thing, Florida home loans are getting pricier. The average 30-year fixed rate mortgage was 6.64 percent last week, the highest seen since June 2002. Not to mention the fact that a strong rental market makes it easy to lease apartments instead of selling them. The average apartment rent in the first three months of 2006 was $877, up 15 percent from the same period last year, according to RealFacts, a research firm.
“What we’re finding is that concessions are now rampant with 70 percent offering some kind of incentive,” McCabe said. “They range anywhere from discounts on prices of as much as $20,000 to the first year’s mortgage payments made to the year’s homeowner’s association dues paid.”
Not every converter is running scared, however. Larry Baum, a director of acquisitions for Prestige Builders Partners, said the company will proceed with plans convert the Bayside Apartments in south Fort Myers.
“It’s a strong conversion project. We’re in a neighborhood of million-dollar homes,” he said.
How this plays out in the next six months to a year is anyone’s guess, but keep a close watch on the market in your area if you are thinking of buying a home — a condo unit in particular. Florida home loan costs and a tepid, shifting South Florida housing market make for a lot of scrambling. Be alert.
