Shifting Winds

Conversion Fever

After a torrid 2004, conversion of apartment complexes to condos leveled off in most of Florida's biggest counties, but the sale of apartment complexes is still brisk. In 2005, a record 401 apartment communities in Florida sold for $12.6 billion, most of which were converted to condos. At an average sales price of $112,056 per unit, that's a 23% increase over the previous year, according to an analysis by Apartment Realty Advisors' Florida office, which handled the sales for more than 19,000 of those units. Nowhere was the trend more pronounced than in Orlando, which led the nation in conversions with 39 properties -- 13,400 units -- sold to converters in 2005. Broward County, meanwhile, led the state in sheer dollar value, with 56 transactions totaling more than $2.55 billion. "Last year was an astronomical year for the conversion world," says Tony Martin, executive vice president of Tarragon Corp.'s Florida division, which develops and markets homes and apartment and condo-conversion projects. "Everybody in 2005 decided they wanted to purchase something."

What's driving the trend? Affordability. With Florida growing by 1,000 people a day, the median cost of a single-family home has risen 109% over the past five years to about $250,000. Increased construction costs, meanwhile, are making new construction costlier and riskier. Figure in the dwindling supply of land, and buyers seeking to take advantage of historically low interest rates have nowhere else to turn but the multifamily real estate market.

Some intended condo conversions haven't gone as well as expected. The Gateway Club in Boynton Beach, for instance, announced it was going condo early this year, but initial sales were so dismal that the owners opted to keep it a rental community. That's good new for renters who've seen rents rise sharply over the past year or so as condo-conversions have shrunk the supply of apartments.

Expect conversions to continue, though at a slower pace. Owen Beitsch, executive vice president of Real Estate Research Consultants in Orlando, says the condo-conversion market is "starting to slow" namely because apartment complexes are becoming more difficult to find, especially in markets like south Florida. "The prices on apartments that remain are getting bid so high that it's either difficult to convert them, or the property itself is wholly unattractive," Beitsch says. Investors interested in apartment-to-condo conversions, Beitsch says, will look for opportunities in "smaller" cities like Tallahassee or Gainesville.

Tags: Around Florida, Housing/Construction