Real Estate Blog

Both developers and investors have been hot to trot on the condo conversion trend. In fact, I probably hear from a new one at least once a month, or at least that’s been the case since January of this year. The standard property sought is something with 200 or more units and that’s easy to convert, or less if the property is waterfront or in a prime location. From Class A apartment complexes to Class C apartment complexes, investors and developers want to convert them. Everyone knows they’re hot, including the Tampa Tribune:

Making The Switch

In most cases, turning an apartment into a condo consists of installing new carpet and changing the sign out front. Some developers make cosmetic changes, such as upgrading appliances, replacing Formica counter tops with granite and trading in laminate cabinets for wood.

However, there are key differences between apartments and condominiums when it comes to original construction. Apartments typically have thinner walls, lower quality insulation and smaller separations between floors, builders say. Condominium builders typically cater to buyers who would turn up their noses at lower quality materials.

Some developers and engineers say such differences keep apartments from ever truly becoming condominiums.

Where the two kinds of units don’t always differ significantly, though, is price.

“You don’t want to pay premium for something that isn’t premium,” said condominium builder Brooks Byrd, of the St. Petersburg-based Byrd Corp. “The apartment conversion is such a new phenomenon in our area that people don’t really understand what they’re buying.”

This year, more than a dozen apartment complexes in the Tampa Bay area have announced plans to convert, and many more owners say they are thinking about it.

Tom Senkbeit, chief investment officer of Post Properties, which is converting one of its Hyde Park complexes, said the market is right for conversions.

With interest rates low, many of Post’s tenants are considering buying a home. Post saw an opportunity because many of its properties are located in high-demand, urban areas, Senkbeit said.

Apartments aren’t built as well as condominiums, he admitted, but newer apartments are typically built well. And conversions provide housing in neighborhoods that would otherwise be unattainable to some buyers, he said. People who can’t afford a home in Hyde Park, for example, might be interested in a Post apartment priced at $150,000 to $300,000.

“Our units aren’t as big as a single-family home, but for the location and the price, the condo is someone’s choice in some neighborhoods,” Senkbeit said.

With land prices escalating, he said, apartment complexes are typically 20 percent to 30 percent more valuable to sell as condos than to keep as apartments.

When consulted recently about selling one of its apartment complexes, Senkbeit told me they’d rather convert their apartment complexes to condos themself, understandably. The biggest problem investors and developers find in their adamant desire to convert apartment complexes into condos is the fact that some of the most attractive complexes’ owners will keep and convert. Other apartment complex owners, though, may contact me anytime for representation in the sale of one of their apartment complexes. It might make four principals of some very well-to-do groups, including REITs, I know very happy. Some of them probably won’t care if your apartment complex has a HUD loan with a lengthy lockout date on it. After all, there’s a way out of everything, isn’t there?

What does an apartment complex suitable for condo conversion look like? It looks like the one above that’s under contract with a backup (listed with Equity Pro) in Pinellas Park, Florida. Will they be converted to condos? No one will know until the sale is closed, if either contracts get through their due diligence period.

Some of the hottest condo conversions to buyers include The Club at Feather Sound and The Quarter at Ybor, and those units aren’t even available for purchase, yet, except to VIPs. The condo conversion trend will likely continue to be hot, as long as apartment complex owners continue to profitably sell to developers and investors seeking to make a profit from selling apartments converted into condos.

-John Mudd
“Mr. Real Estate”