Condo conversions were a big part of the South Florida housing market during the boom years, but they had been missing in action…until now.
Condo conversions, aka the process of transforming existing apartment complexes into condominiums with multiple owners, were one of the defining characteristics of Miami’s great housing boom from 2003 to 2006, but now, with the Magic City’s housing market putting up some of its best numbers ever, condo conversions have made a return to the scene, reported Peter Zalewski of Condo Vultures in the Miami Herald.
The Return of Condo Conversions in Miami
A number of factors, Zalewski wrote, have driven real estate professionals to once again embrace condo conversions:
- First, there is the obvious cost benefit – after all, converting an apartment building to a condominium will always be a cheaper alternative to financing an entirely new condominium development.
- Next, there is Miami’s tight condo inventory. Currently, there are just 19,400 units in the South Florida re-sale, a 4.0-month supply that is far lower than the 60,000 units of five years ago.
- And finally, Miami still faces an ever-potent demand from foreign investors, who have already prompted South Florida developers to propose 161 new condo towers; three have been built thus far, and 36 are currently under construction.
Anticipation in Miami’s Housing Market
One thing we should point out, though, is that South Florida’s housing market is not necessarily awash in condo conversions at the moment. Though applications are on the rise, developers have filed for just two conversions thus far in 2013, down from four in 2012 but up from one in 2011. By comparison, there were 94 conversions in 2003, 178 in 2004, 370 in 2005 and 327 in 2006.
But anticipations, Zalewski wrote, are running high for conversions to return, especially among high-profile apartment buildings.
“Expectations are high that in the upcoming weeks before the winter buying season begins another high-profile rental project in the Brickell Avenue area could announce plans to convert into a condominium to tap into the current seller’s market, according to industry watchers,” Zalewski wrote.
The reason why so much of the condominium inventory was absorbed was
the domination of large and small investors in acquiring loans, bulk purchases and individual units. Mortgages were AWOL so end user buyers
were largely out of the competition to acquire. Investors aren’t getting wealthy renting units out but anticipate selling them pending the evolution
of favorable market conditions. Weather that time is now or later remains to be seen but my opinion is that the large number of units in investor hands will make condominium conversion less appealing, particularly
since the investor owned condominium units are purpose build condominiums as opposed to rental apartment units which typically will
be smaller and have fewer features and finish levels. In short, conversions are all about affordability and if they can be priced significantly below true condominium competition and if lenders are
willing to provide end user mortgages we will probably see some but
I see no boom anytime soon. I don’t consider our latest condominium
phenomenon of sales to off shore buyers as indication that we are at the threshold of strong domestic demand.