MIAMI – Diana Perez got the letter a few months ago: The apartment complex where she and her family live was converting into condominiums. They had to leave if they couldn’t pay a 20 percent down payment on their two-bedroom apartment, now selling for $185,000.
That’s $37,000 up front on the apartment they now rent for $900 a month – too much for the 36-year-old who works in a nail salon and her car salesman husband, so they’re looking for someplace else. But in the red-hot Florida real estate market, they’re having trouble finding anything comparable nearby.
“What I want to find is a place where I can stay and they’re not going to kick me out” if the owners decide to convert into condos, she said.
As apartment building owners face rising property taxes and rents lower than home prices in certain areas, many are deciding to convert them into condos. That can generate large profits for owners, but the dwindling supply of apartments makes it harder for renters such as Perez to find a place to live.
But developers say they help people who can’t buy a single-family home by providing more affordable condos.
Problems finding apartments are more due to population growth and the difficulty for building owners to stay afloat with lower rents, said William Friedman, chief executive of Tarragon Corp., a New York-based urban home builder and condo converter.
Converted condos offer first-time buyers an affordable option to build up equity and live in more desirable locations with fewer responsibilities than owning a home, he said.
So far this year, the value of apartments sold to become condos is $22.6 billion, or about 152,655 units, according to Real Capital Analytics.
And the benefit for developers to convert is clear. So far this year, apartments converted into condos sold for an average of $154,000, compared with an average of $88,000 for units in buildings that were sold as rentals, according to the research firm.
Rents have been creeping back up as the market gets tighter after falling from 2001 to 2003, when more people were buying homes and avoiding renting. In the third quarter of this year, the national average rent for a 1,000-square-foot apartment was $1,258 a month, up from $1,195 in the fourth quarter of 2003, according to Global Real Analytics, another research firm.
And rents have increased faster than wages, making it increasingly difficult for poorer families to afford even modest apartments, according to a report from the National Low Income Housing Coalition.
South Florida has been a pioneer in the condo conversion craze. In 2004, 17,000 units were converted into condos, and that could surpass 30,000 this year, said Jack McCabe, chief executive of McCabe Research in Deerfield Beach.
There were 176,000 apartment units in large complexes with unrestricted rental rates in south Florida at the start of 2004, but that is down to about 128,000 now, he said. Wait lists for affordable apartments in the Miami and Fort Lauderdale areas stretch for up to two years in places.
“We have a lot of renters who whether by choice or necessity can’t find another rental that’s comparable in price. We’re seeing a lot of displaced people in Florida,” he said. “We’re not getting companies relocating because their work force is not willing to lower their standard of living to move to southeast Florida and other expensive areas.”
And Florida is not alone anymore. The craze has spread across the country to other hot spots such as Washington, D.C., and San Diego, and even to less in demand areas such as Charleston, S.C., Dallas and St. Louis.
But the trend will likely be temporary because, once the real estate market slows down, the incentive to convert will decrease, said Scott MacIntosh, senior economist of commercial investment real estate at the National Association of Realtors.
Also, many real estate investment trusts are still looking to buy apartment complexes because they provide income over a sustained period instead of a one-time benefit from selling buildings for conversion, he said.
Alphonso Jackson, secretary of the U.S. Department of Housing and Urban Development, acknowledged that HUD can’t stop apartment building owners from selling to converters. But HUD has tried to persuade landlords it works with to sell their properties to nonprofit groups to keep rents affordable.
“And we have been very successful right now in keeping about 10,000 units in affordable housing areas around the country that would have been converted into condos,” he said.
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