Apartments-to-condos-apartments

My recent posting titled "The Real Estate Law of Gravity" provides some of the context for the conclusions here.

A recent Tampa Tribune article detailed the current problems associated with a "late-in-the-market" apartment-to-condo conversion. While not rising to the level of an "I told you so" moment this type of project problem has happened before in our market. Unfortunately there are some very difficult situations that can occur as a result of a stalled or failed conversion and it seems as if this project has, is or will experience most of them. The developer already knows that they likely paid too much, too late for the property and were forced to set a price based on investment cost and not necessarily on market price or value. The advantage of conversions is usually timing in that filing condominium documents, making cosmetic changes and putting a marketing team in place is much less time consuming than finding land, getting approvals and building from scratch. As long as the price fits, the market is not oversupplied and the investor-flipper buyers are still there, it works!

It's a simple but often overlooked process that can be employed; instead of paying "whatever it takes" to buy land or in this case an apartment building, and then building all costs and profit on top to create a price there is a moe sensible alternative. If the developer calculates the selling price of units first and then deducts, all costs including profit and marketing, it becomes apparent what can be paid for the underlying property (land or apartments).

The issues are that if the conversion stalls anytime before sellout and especially early on with just a portion sold when the market flattens or declines the developer and the unit buyers both have a dilemma which will extend to the lender at some point. Once conversion takes place there are ongoing shared expenses, condo fees, indicidual taxes per unit as well as insurance. Marketing and carrying costs continue and any significant delay can eat up all of the potential anticipated profits. At some point when the flipper-investor can't get their price and the developer can't sell anymore there is an ugly stalemate. By that time the lender may be involved and will be concerned but not excited about taking over the problems and letting the developer off the hook. The few unit owners are stuck without assurance of services promised and the effects of having overpaid now that their unit cannot sell for wha tthey paid. This could drag on until "someone" comes along and is able through market conditions convince all parties to sell out and move on. The "price" paid is likely to make enough sense that the project can once again function in its intended role until there is once again an apprent "demand" for conversion.