More Evidence of Condo Conversion Halt; Florida Home Loan Popularity Returns
More signs are popping up that the previously popular condo conversion market is slowing down. As the Florida housing market cools, price appreciation is slowing down and buyers are re-entering the home purchasing world. There’s just no need any longer to convert as many buildings into cheap condominiums.
The Gateway Club in Boynton Beach is a prime example of such a shift. Its owner, who had one time offered “insider” discounts to apartment residents in exchange for buying a condo unit, is reversing course and reverting to apartments.
Although one-third of the 319 units had been upgraded in anticipation of sales, no Florida home loan deals were closed. The owner had to refill the complex with renters, so incentives — like lower rent — were offered. Current tenants say they weren’t given the same perks when they looked into resigning their leases.
A shift in the Florida condominium market
Michael Cohen, a research strategist at Boston real-estate analysis firm Property & Portfolio Research Inc., dubs such reversions “repartments.”
“It’s definitely becoming a problem,” he says. “Some of these projects probably don’t look as attractive as they did six months ago when developers were buying the conversions.”
So far, the reversions are dwarfed by the number of units that have been converted into condos in recent years. But an emerging trend is evident as Florida real estate developers stuck with slow-selling condo units struggle to recoup part of their investment and as tenants gripe about being caught in the middle when their building swings from apartments to condos and back again.
“It was the wrong market, wrong time,” said Jenny Reidy, Gateway Club’s rental manager, who recently left the company.
In the South Florida housing market - where the condo-conversion craze has been particularly intense - eight converted complexes containing 2,156 units have reverted to rentals in Broward and Palm Beach Counties, according to Jack McCabe, chief executive of McCabe Research & Consulting in Deerfield Beach, Fla. This figure compares with about 62,904 units that have been converted or have begun to be converted into condos in the area since 2004, he adds.
Industry watchers say the repartment trend isn’t necessarily a bad thing for the apartment and condo markets. The rush to switch to condos in some Florida real estate markets led to a dearth of apartments and caused rents to increase. Units coming back on the market as rentals could ease upward pressure on rents; although this hasn’t necessarily been the case as Florida home loan rates have increased recently.
The result of change in housing market
Overall, the financial pressure on would-be condo converters can be intense, analysts say. For conversion properties, typically they’ve been willing to pay 35% to 40% more than their value as rental apartments, says Coral Gables, Fla., real estate analyst and consultant David Dabby. If the project cannot be converted, it becomes a substandard investment being run as a rental property. And if the investment was highly leveraged, the converter risks losing the property, adds Mr. Dabby.
Sellers are also in a bind. At the Gateway Club, Adam Culp, a 39-year-old programming manager, says he received mixed messages about the price to buy his nearly $1,200-a-month, two-bedroom apartment. First the sales office told him he could buy it for $320,000. Then the price dipped to $260,000 and eventually shot back up to $300,000. “I still can’t tell you what the final offer price was,” he says.
Even those that do find Florida home mortgage loan takers for their units face a stressful process of having the apartment apprised and sold. The hope is that market corrections across the board won’t cause such revisions and/or “repartments” in the future. This has been the case recently as apartments are once again viewed as safe investments in a changing housing market.
