Why Some Real Estate Investors Are Buying Condo Conversions

Published by nora | Filed under Buyer / Seller Tips, Market Trends, Miscellaneous, Real Estate

With stories of investors losing their investments in apartment-to-condo conversions, one wonders why there are still a number of people investing in condo conversions. These buyers must be seeing something other people can’t see.

Brokers who negotiated the sale of condo conversions recently in Florida said that investors bought the properties because of the following:

• They believe the residential real estate market will recover in a few to several years.
• They believe they can earn 20 to 30 percent from their investments, so they’re willing to wait.
• Rental rates in certain places in Florida have risen so converted-condo investors can rent out their properties while waiting for the time they can sell them at the profit they want.
• Observers also speculate that these types of investors in Florida have deep pockets. They can afford to wait.

Recently, the Israel-based investment company Gamla-Cedron Group completed the purchase of its fourth condominium conversion in the Tampa area since the middle of last year – the 392-unit Class A complex called Preserve at Temple Terrace. This property is also the fifth distressed multifamily it has acquired during the period.

In 2006, the condo-conversion investor acquired this apartment complex for $46 million or $287,500 per unit. Since similarly-fractured properties are being sold for about 30 cents on the dollar, certainly Gamla-Cedron bought this complex at a substantial discount.

All in all, the firm has already bought almost 800 troubled units from six lending institutions, and is still looking to purchase another 1,000 units across Florida and other potentially-profitable Class A properties in key housing markets in the Southeastern part of the U.S.

According to the Florida Department of Business and Professional Regulation, a total of 1,330 apartment complexes statewide were purchased and converted into condominiums over the five-year period from 2005, with conversions reaching their peak level of activity in 2006. Condo conversions became popular among real estate investors during this time because the process of buying land and developing a condo complex on it is far more complex and more expensive than buying an apartment property and remodeling it into a condo asset.

It’s not only the Israeli firm that is acquiring properties for rental and eventual sale opportunities. Condo brokers in Florida counties and cities are negotiating condo acquisitions for various investors looking for bargain-priced troubled blocks of residential properties, including condo conversions.

Individual investors can get in on the condo conversion bandwagon, but they need to make thorough studies of their own finances. They have to make sure they can pay for the property for some years as they wait for the time they can sell at a profit. Or better yet, they can explore condos that are built as condos from the beginning.

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