      
|
|||
|
PO Box 1212 Tampa, FL 33601 Pinellas Updated May 2006
|
|
RETURN TO NEWS INDEX
Converted Condos Changing Market TAMPA - Melanie Scala bought her first investment property, an apartment that had been converted into a condominium, in early 2005. Then she bought three more.
Scala wasn't looking to make a quick buck; the speech pathologist planned to rent the properties for a couple of years, tucking away a reasonable profit, then sell.
Finding renters, though, has been more difficult than she anticipated. To compete with other condo owners looking for tenants, she had to lower her rent so much that she is losing about $500 each month. She receives less from her tenants than she pays each month for mortgages, taxes and condominium association dues.
"You don't think that everyone is trying to do the same thing you are," she said. "I'm hoping I'll still make a lot of money on the properties when I sell."
The condo conversion boom in the Tampa Bay area hasn't worked out as well as some expected, and a glut of units has triggered a cooling market.
The Tampa Bay area was the third-hottest market in the country last year for apartment-to-condominium conversions, behind Orlando and New York. Like others who invested in the trend, Scala is still weighing the costs and benefits of the wave of conversions.
The scorecard has some checkmarks in the minus column:
•Although some apartment-to-condominium conversions have sold out, speculation, poor property selection, inflated prices and competition have caused other complexes to sit mostly empty.
•Some investors who hoped to flip properties for a quick profit haven't. They can't find renters and may face foreclosure on the units.
•Rental tenants have been evicted from apartment complexes and, thanks to all the condominium conversions, are faced with fewer apartment communities and fewer vacancies.
In the plus column:
•The wave of condominium conversions has created affordable housing and investment opportunities at a time when the median price for single-family existing homes in the Tampa Bay area and Florida has skyrocketed, and prices for construction materials, labor and land have forced most developers and home builders into the luxury housing market.
•Housing demand remains strong in the Tampa Bay area, thanks in part to the growing population and job market, so there's little risk that empty condos will remain vacant for long.
•A cooling in the apartment-to-condominium conversion trend eventually should balance out the ratio of condominiums for sale and apartments for rent.
Conversion Hits Home
For the Van De Wall family in New Tampa, the apartment-to-condominium conversion trend means being forced to move into a smaller apartment.
Perry Van De Wall said he wasn't surprised when he received a letter Dec. 2 informing him that his apartment complex, The Enclave at Richmond Place, was being converted. The apartment complex had been sold several times since his family moved in three years ago, and many other apartment complexes in the area had been converted.
Van De Wall said he wasn't interested in buying his three-bedroom apartment unit because he would rather save for a single-family home.
He didn't want to move into a similar three-bedroom apartment unit in another New Tampa complex, either: For one thing, the units were too expensive, and considering the number of New Tampa apartment complexes that have been converted to condominiums, "you're playing Russian roulette whenever you move," he said.
Van De Wall said his best option is to move into a two-bedroom apartment in Lutz, where his family lived before moving to New Tampa.
The Van De Walls' experience is common these days. Last year, nearly 21,000 apartment units were bought by condominium conversion companies, according to New York-based research firm Real Capital Analytics. Practically no part of the Tampa Bay area has been untouched by condo conversions. Developers have been particularly interested in south Tampa, New Tampa and Carrollwood, and, more recently, Brandon and Riverview. Activity is hot in Pinellas County, especially with older buildings in areas known for moderate housing prices, said Askia Aquil, executive director of St. Petersburg Neighborhood Housing Services.
Changing Market
Interest in apartment-to-condominium conversions has started to subside, said Dan Fasulo, director of market analysis for Real Capital Analytics. Investors have grown more cautious, and many of the apartment complexes that can be converted already have been bought, he said.
"When the lenders start to get nervous, the spigot gets shut off," he said. "We're not at that point yet, but we're definitely seeing lenders put these deals through much more scrutiny than they have in the past."
Real Capital Analytics said investors spent $2.3 billion in the Tampa Bay area last year buying apartment complexes for condominium conversions. In 2004, the total was $235 million, about one-tenth of the 2005 figure.
In the first three months of 2006, investors spent $356.3 million in the Tampa Bay area for apartment complexes to convert to condominiums, according to Real Capital Analytics.
Fasulo said condominium conversions appear to be slowing in the Bay area, but some types of condominium conversions - the more affordable ones - should remain strong.
"As much as I see some of these luxury conversions start to take a hit, there seems to be an unbelievable demand in Florida for entry-level condominium conversions," he said.
The changing market is evident in sales offices throughout the Bay area.
Catherine De Lafontaine, sales manager for Vista Grande, an apartment complex being converted to condos in New Tampa, said she is seeing fewer people expecting to buy condominiums to sell quickly than she did last year. Instead, she's seeing a marked increase in buyers looking to live in condominiums, or looking at them as long-term rental property investments.
With the so-called flippers out of the market, there's no artificial pressure on demand or pricing, she said.
"I think the last two years have been inflated, but right now we're seeing what the market was like three years ago," she said. "Things are back to normal."
Investment Payoff
Jordan Knab and Michael Shaffer bought a condo at Sienna Villas in Tampa's West Shore district in early 2003. The purchase gave them a place to live, and it turned out to be a good investment.
Knab, a researcher at the Florida Mental Health Institute at the University of South Florida, said he and his partner didn't feel like they were living in someone else's old apartment. The units were gutted, and buyers were given options for new floors and kitchens.
In addition, Knab had a diverse group of neighbors, including recent college graduates buying their first homes, and previous renters who felt too attached to the neighborhood to leave.
"I think there was a stronger sense of community there than you'd find in an apartment complex," he said.
Knab and Shaffer sold their condominium in late 2004. The property had appreciated 30 percent, and the money they made on the sale helped them buy a single-family home in Madeira Beach.
Developer Expectations
Last year, officials at Atlanta-based Post Properties Inc. created a division to convert apartments nationwide into condominiums. The company is converting two of its Tampa apartment complexes, in Hyde Park and on Harbour Island.
Anthony Everett, director of the company's Florida investments, said more conversions are on the way. At the same time, he said, the company is building condominiums in the SoHo neighborhood and a 206-unit apartment complex in Citrus Park.
"If you only do for-sale business, then when the market slows, you can't capitalize on the people who need apartments," Everett said, noting the company hopes to attract renters displaced by conversions.
The company recognizes the potential for a conversion glut, he said, and limits apartment conversion sales to no more than 25 percent investors. It is also selective about complexes it converts and avoids older buildings in outlying areas. Pricing is also important, he said, noting that as long as the cost of the converted apartment is less than single-family homes in the neighborhood, it should sell.
"We're seeing a lot of properties converted that don't make sense to convert, and the developers don't have the experience to know that," he said.
That's creating artificial competition among experienced developers and investors buying the units, said Tony Martin, executive vice president of the conversion company Tarragon Corp., based in New York.
The company has converted more than 30 complexes in Florida, four in Tampa.
"I saw a statistic recently that there were 80 converter companies in the country in 2004," Martin said. "By early 2005, there were 800 converters."
It hasn't been all roses for Tarragon, though. Martin blames the competition.
The company's The Quarter at Ybor complex, which it converted last spring, has 454 units, but just 207 have sold, according to county records. Only 12 of those owners have applied for Florida's homestead exemption, a sign that few live there full time.
Scala, the speech pathologist, said she's happy with her decisions but wishes there were less competition in the rental market.
"When you have a whole development that closes at the same time, everybody's trying to rent their units out," she said.
It's better to lower the rent to bring in a tenant than to let the apartment sit vacant for several months, she said.
"I'm just a young person who's trying to stay ahead of the game," she said. "This market's a little more consistent than the stock market these days."
MARKET SHIFT
Pricey apartments make for pricey condominium units. Here is what some units are selling for in the Tampa Bay area today, and what the rents would have been for those units if they still were apartments. These two examples provide a snapshot of what happens to a unit's price tag when an apartment complex gets converted into condominiums. Keep in mind, this is not a straightforward comparison. Renters don't have to worry about condominium association fees, and owners get tax benefits.
THE QUARTER AT YBOR
Ybor City
Two bedroom, two bathroom unit, 1,130 square feet THE ENCLAVE AT RICHMOND PLACE
New Tampa
Two bedroom, one bathroom unit, 916 square feet |
|
|