Condominium converters — not widely seen in South Florida since the last real estate crash — are returning to the tricounty region in hopes of profiting from the residential market recovery.
Much like the glamorous condo project launch parties and the construction cranes that have recently reappeared in South Florida, condo conversions — the process of turning existing apartment complexes owned by a single corporate entity into a community association comprised of multiple individual unit owners — were a stalwart of the last real estate boom in Miami-Dade, Broward and Palm Beach counties between 2003 and 2006.
As the real estate market began to collapse in 2007, many condo converters were forced to unload remaining units at prices discounted far below the levels originally projected. As the downturn deepened in 2008, several condo converters were ultimately forced to return — both voluntarily and involuntarily — the units to their lenders before ultimately leaving town or getting out of the business.
Constructing a condo project from the ground up can be a lengthy, expensive and risky process. Buying an existing rental project and selling the units to individual owners — often current residents — is a far quicker way to recoup investment and make a profit. After the initial purchase, the owner needs only to file paperwork and pay a fee to the Florida Division Of Condominiums, Timeshares, and Mobile Homes. Approval generally is a straightforward process.
So it’s no surprise that some five years after disappearing from the South Florida landscape, condo converters are once again resurfacing in the tricounty region.
The looming return of the condo conversion comes at a time when inventory is tight and prices are on the rise. As of Sept. 16, fewer than 19,400 units were on the resale market in South Florida — a massive reduction from 2008, when more than 60,000 South Florida units were available for resale, according to the Southeast Florida MLXchange.
At the current resale transaction pace of 4,500 units per month, South Florida has about four months of condo inventory available.
A healthy residential real estate market typically has about six months of resale inventory. Any inventory levels that are less than that qualify as a seller’s market, while levels that are greater represent a buyer’s market.
In large part, the strengthening condo market is driven by foreign investors with strong currencies who are attracted to high rental rates being paid by tenants. Their interest has prompted developers to propose 161 condo towers with more than 21,800 units in coastal South Florida, according to calculations by my company. A trio of condo towers has already been built, while 36 more buildings are currently under construction.
Currently, only a handful of condo conversions are underway in South Florida. But a growing number of applications are in the pipeline, according to state records and industry watchers.
Developers in South Florida have filed to convert two projects in 2013 — down from four projects in 2012 and one project in 2011. (In the prior two years, developers filed to create three projects in 2010 and four projects in 2009 in the tricounty region.)
During the last South Florida real estate boom, condo converters created 94 projects in 2003, 178 projects in 2004, 370 projects in 2005, and 327 projects in 2006, according to Florida government records.
Fueling the growing optimism about the return of the condo conversion can be attributed to the tight resale inventory, rising prices and a pair of recent announcements regarding high-profile rental projects in Greater Downtown Miami.
In mid-August, the owner of the 163-unit rental tower known as Midblock in the Midtown Miami mixed-use complex in the Biscayne Boulevard Corridor launched sales of individual condos in an attempt to capitalize on the popularity of the area.
Days later, the out-of-town developer of a proposed 34-story rental tower — currently under construction above a Publix in the Brickell Avenue area — announced its own plans to turn the 390-unit apartment project into a condominium that is to be known as the Nine At Mary Brickell Village.
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.
For condo converters searching for inventory, several new rental projects have recently been completed or are currently under construction in South Florida.
More than a dozen new projects with a combined 3,500 units have been recently completed while an additional 31 projects with nearly 9,850 units are under construction in Miami-Dade and Broward, according to a recent Miami Herald article.
Going forward, the unanswered question is whether condo converters, lenders, and buyers will remember and adhere to the lessons learned from the last real estate boom-and-bust cycle that devastated prices in South Florida.
Peter Zalewski is a p rincipal with the Miami real estate consultancy Condo Vultures. Zalewski, a licensed Florida real estate professional since 1995 and founder of CVR Realty and Condo Vultures Realty LLC, advises developers, lenders and institutional investors. Zalewski also runs the preconstruction condo project website CraneSpotters.com in conjunction with the Miami Association Of Realtors.