Orlando Housing Market Squeezes Workers

Condo converters drained more than 30,000 units from Metro Orlando’s rental pool during the height of the home-buying frenzy, creating a market so tight that many landlords had waiting lists of would-be tenants.

No more.

The current slump in home sales has turned the local rental market on its head.

As Florida mortgage costs soared beyond what many could bear, many thousands of condos have slipped back into the rental market in the past year, creating a hard-to-track supply of housing that has taken the edge off the apartment shortage.

A few apartment landlords have even started offering a limited amount of free rent to entice tenants to their complexes, said Jim Lewis, president of Charles Wayne Consulting Inc., a Maitland research firm.

“Before the condo-conversion craze, condos were an insignificant part of the rental market,” Lewis said. “Now it’s big - but how big, we don’t know. It’s a shadow market.”

Lewis said the firm’s March survey of Metro Orlando’s apartment complexes found they were 91.3 percent full - down from 94.1 percent in September and way down from the record-high, 96.4 percent occupancy rate set just a year earlier, in March 2006.

He attributed the decline in occupancy to the flood of condo conversions that are re-entering the market, though he said it’s almost impossible to document how many units from converted complexes have actually morphed into leased units, since converters don’t like to discuss their holdings.

Orlando may have the biggest “shadow market” of rental condos in the U.S., because during 2004-06 it led the nation in condo conversions, said Greg Willett, vice president of research for M/PF Yieldstar, a Dallas-based apartment-research company.

Willett said an estimated 21 percent of Metro Orlando’s rising condo inventory - or 32,450 units - was swallowed up by condo converters during that three-year period.

With Florida home mortgage rates at record lows, thousands of units were sold to investors who planned to rent them out as the home-buying frenzy drove property values ever higher.

Once the Orlando housing market cooled, converters began dumping condo units back into the rental pool when they could no longer sell them.

Dean Asher, vice president of Don Asher and Associates in Orlando, said the condo-conversion-rental part of his business has exploded.

He now has eight property managers leasing units for both converters and individual investors.

“It’s gotten real competitive,” Asher said, noting that the MetroWest section of southwest Orlando alone has 21 conversion properties, creating a rental market glut.

Kathy Scott, one of Asher’s property managers, has 97 rentals in Lakewood Park, a 502-unit complex in Altamonte Springs that recently was converted from apartments to condos. She said her clients are investors, and are eager to keep their condos rented during the current slowdown.

“We keep the rents very competitive to keep the units full,” she said. “That keeps the investors happy.” One- and two-bedroom units in Lakewood Park rent for between $700-900 a month, she said.

Tracey Black found her Lakewood Park rental through Scott. Black, a children’s dance teacher, is delighted with her unit.

“It’s a wonderful location,” she said, noting that it’s convenient to Altamonte Mall and major roadways such as Interstate 4.

Lewis, the Maitland researcher, thinks the flood of condos-turned-rentals will hinder a repeat of last year’s rental hikes, which were generally in the 7-8 percent range - nearly double the area’s 4 percent average.

“We see rents stabilizing,” Lewis said.

Willett, the researcher for M/PF Yieldstar, said anecdotal evidence from across the country suggests that about one-third of all apartment units caught up in condo conversions are back in the nation’s rental pool.

He said the two Florida markets in which landlords are “getting hammered” the most by condo-conversion rentals are Orlando and Palm Beach.

Still, while the local occupancy rate has fallen sharply during the past year, the market is still pretty solid from a landlord’s point of view. “Anything over 90 percent is a good market,” Willett said.

It’s doubtful the occupancy rate will fall much further, Lewis said.

Apartment construction remains at a low ebb because of a shortage of land, and rising costs - from government impact fees to taxes and insurance - will dampen developers’ desire to invest, he said.

With Florida home loan activity tepid, it appears all facets of the Central Florida housing market will start to taper off.

SOURCE: Orlando Sentinel