The apartment to condominium conversion peaked in fall 2005 at around September when multi-family units were being converted into condominiums. Yikes! Where would all the tenants move to since they can not afford the mortgage.
The property owners would not care where the tenants move into because the condominium conversion will help them profit with a great return on their investment.
Cities nationwide were going facing condo conversions, which ultimately would affect the real estate market, nationally and locally. Keep in mind the market is really a local market and the prime rate is not the main factor that controls the market.
Las Vegas, Phoenix, San Diego, Miami, Orlando, cities with a vast amount of real estate got in the bandwagon. Cities with a tight rent control like New York City (not likely to happen; actually condo-conversion did take place in NYC) did not have a problem but Los Angeles took part of the bandwagon ride. Fortunately, not all cities in the Los Angeles County are rent-controlled and the city permitted with the conversion.
Apartment-condominium conversion was a win-lose situation. Apparently the property owners won because a
"successful sale of condos can generate cash-on-cash returns of between 15% and 30% or more in a matter of months for converters, the trend also enables apartment owners to cash out at the top of the market. In addition, conversions create more affordable housing in areas famous for steep single-family home prices." <http://www.nreionline.com/property/multifamily/real_estate_condo_conversion_craze/>
15% to 30% return within a short period of month is astonishing and imagine the calculating the ROI once the property is sold at the highest value (above the market value).
Apartment->Condo->Reconvert to Apartment
Converting a rental multi-unit property into a condo is not a guaranteed profit. The following article clip is only a speculation.
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Originally Posted by http://www.realtor.org/RMODaily.nsf/pages/News2006080809?OpenDocument Markets where re-conversion is happening most frequently include Miami, Fort Lauderdale and Orlando in Florida, as well as Las Vegas, San Diego, and Phoenix, according to Hessam Nadji, managing director of research services at Marcus & Millichap, a national real estate investment brokerage company. Between 25 percent to 40 percent of the condos being developed or converted in those markets are likely to be offered as rentals instead, he said. Nadji predicts that a healthy demand for condos will continue in some cities, including Seattle, Philadelphia, Tucson, and Portland, while New York and Chicago will remain fairly stable. |