Saturday, March 10, 2012

Negligent Condo Conversion?

The Conversion Cycle. The latest round of conversions of old apartment buildings to condominiums has come and gone. While the cycle was quick, no professional in the community association industry could have missed it. Numerous "new" communities were created from old apartment buildings during the five years of the late, great, housing boom. Why then? Because when not only is every piece of residential real estate selling as fast as it's listed, but when there is also a waiting list to buy new homes, you had to know that developers would start looking for something else to sell — perhaps something that didn't take several years to develop and build. Immediate inventory, if you will. Old apartment buildings are made to order. Add to that the fact that in such a super-heated market the value of an apartment is much greater if it can be sold as an individual parcel than if it is just one unit in a large rental complex, and you have the makings of another conversion boom.

I say "another conversion boom" because we have seen one twice before — in the early eighties and early nineties — and each time, at the tail end of an upswing in housing prices, numerous apartment complexes were converted to condominiums. The latest version just ended, and we probably will not see any further conversions for a long time. In less superheated real estate markets, buyers prefer new construction and will pay to get it until prices reach record levels and/or there is no new inventory to buy. When that happens, the housing market will temporarily support conversion activity again.