Renters Face Decision to Purchase Condo Conversions!

Renters face decision to buy or fly with condo conversionsBy Dick Hogan.
Published by news-press.com on September 12, 2005

Cape Coral resident Arthur Perez, 61, received notice Aug. 3 that he will have until the end of his lease in April to purchase his apartment at Coral Cove Condominiums or move. Many area apartment complexes are converting to condominiums. STEPHEN HAYFORD/news-press.com


Kevin Geren, a paramedic for Lee County EMS, is likely to be forced out of his apartment in Gateway by a conversion. He lives in this two-bedroom apartment with his wife and stepdaughter.
Southwest Florida's riding the crest of a condo conversion wave — making big bucks for developers but headaches for some renters who can't or won't buy their apartments.Experts agree that the boom is well under way in super-heated real estate markets such as Lee County's, where thousands of apartments have been converted or are in the process. But they are split when it comes to predicting whether the high prices caused by the boom can be sustained in the long haul.Meanwhile, renters sometimes have tough decisions to make.
"I'm likely to be forced out," said Kevin Geren, 33, a Lee County paramedic who lives with his wife and a stepdaughter in a two-bedroom apartment at The Grand Apartments at Gateway, which is being converted into condos by Miami-based Prestige Builders Group.
Geren's thinking about buying and says it may be a good deal. "If they're willing to sell me one for $165,900 but sell to the general public for $180,000, it may be a decent investment."The alternatives are bleak, he said: renting a three-bedroom house would cost about $1,400 a month; a three-bedroom apartment rents for $1,100-$1,200. He's paying $900 now.
Meanwhile, housing prices have exploded in Lee County recently. The median price of an existing single-family home rose from $200,000 in July 2004 to $287,500 in July 2005, according to the Florida Association of Realtors.As a result, apartments are quickly becoming condominiums. The Gardens at Bonita Springs, for example, started out as an apartment complex but switched to condos in 2004 because that made more economic sense to owner Royal Palm Communities.
ECONOMICS FUEL TREND
Simple economics are behind the nationwide trend, said John McIlwain, senior resident fellow for housing at the private, nonprofit Urban Land Institute.For the first time in history, he said, "The price of an existing condo is more than the price of an existing single-family home": $219,000 vs. $217,000 according to the National Association of Realtors.
In addition, McIlwain said, most rental markets around the country are soft, and there's a major influx of young couples priced out of the single-family-home market and "empty nesters" who don't want the hassles of keeping up a house.So far, for buyers and developers alike, the conversion craze has been mostly profitable as housing prices have continued to soar. In Regatta Point, formerly Kenwood Apartments on College Parkway in south Fort Myers, prices started at $129,000 but "the prices have escalated quite a bit," said Lourdes Castaner-Ruano, marketing director for Hialeah-based Puig Development Group, which is doing the conversion.
Puig is also converting River Bend Apartments and recently sold out the former Renaissance Apartments, both on Winkler Avenue in Fort Myers. Castaner-Ruano said buyers in this market are a mix of investors, people looking for a place to live and second-home purchasers, many of them from the east coast."In some of these projects they've been literally raising the prices every hour at the grand opening," said Deerfield Beach-based Jack McCabe, a multifamily housing market analyst with McCabe Research & Consulting.But, he said, things don't look good for the future in South Florida and other markets where a lot of apartment buildings are going condo. "There's almost a feeding frenzy right now in real estate that was present before the stock market bust in 2000 and before other busts before that."
The pace isn't sustainable, McCabe said, noting that in South Florida, 17,000 apartments were converted into condos in 2004 and 25,000 have been so far this year.Southwest Florida isn't at that point yet, however, and still offers bargains compared to other markets: Converters typically pay $98,000 to $105,000 a unit for a large, 20-year-old complex, compared with $200,000 in Miami.
CONVERSION EASIER
Randy Mercer, a commercial real estate agent with CB Richard Ellis, Fort Myers-Naples, said it's a lot faster and easier to convert existing rental complexes to condominiums than to build them from scratch. "If you build you have to buy the land, go through permitting, pre-selling and all of that."Besides, he said, "People are still paying rent through the conversion process, so it's not like you're buying an empty shell."
Under state law, renters have to leave once their lease is up although they must be offered the first chance to purchase their apartments.Mercer doesn't agree with McCabe that there's a crash coming. Conversions will always be attractive, he said, because typically the older complexes are in good locations and priced lower than new condos.
They're attractive to people who otherwise would be pushed out to the edge of the urban area where new homes are being built. "They can't get a $400,000 house but they can get a $150,000 or $170,000 condo."Still, he said, the boom in Lee County conversions may be just about over. "I think there are a few projects that are left in the marketplace, but I think most of the really good ones are gone."Not all apartment complexes are equal, he said. The ideal complex for conversion has at least 150 to 175 units and is in a good enough neighborhood to be attractive to buyers.
McCabe warned that consumers should be careful about buying a conversion.Buyers should make sure they understand things such as how much money the seller has agreed to give the condominium association to cover any repairs and replacements that may need to be done. Almost nobody is being careful enough with such details or even getting an independent inspection, which is done routinely when buying a house, he said.
"They may get in and find there's a huge mold problem behind the drywall, or the heating and air-conditioning system may need to be replaced," McCabe said. "The seller may have left only $40,000 in reserves. The buyers can get themselves into significant financial outlays."
Retired, never owned, not ready to start now
Arthur Perez, 62, retired and moved to Cape Coral from New York City to raise his two children, ages 10 and 12.But he recently was told that Coral Cove Apartments, where he lives, is being converted into condominiums."I might consider staying but it's basically up in the air," Perez said. "I've never owned, I've never been into the real estate."
He wants to keep his children in the schools they attend, but is having a hard time finding a three-bedroom apartment he can afford and has doubts about spending the roughly $200,000 his apartment would cost."I worked for the phone company for 31 years and I'm on a tight budget," he said. "It's a fixed pension, one of those early outs. That's one of my particular problems: I'm kind of limited as far as what I can do."
With wedding, moving plans, not time to buy
William Staros, 22, is a full-time student and part-time Lee County substitute teacher who graduates next year and plans to go to Miami to get a teaching job after he gets married. His fiancee is also graduating and will look for a job there as a theater director.But Staros' apartment at the River Bend complex on Winker Avenue is being converted into condominiums. "They want everyone out by the end of November."Now they're agonizing over what to do. "We may just go and get a loan and get a first house but the prices they're asking are just absurd."
They may try to find an apartment to rent, he said, but "we don't want to live in a run-down community. The big issue is we're getting married this Christmas and more than likely we'll only stay here another six or seven months."
BY THE NUMBERS
Here are some statistics on condominium conversions of apartment buildings:• 60,844: number of apartments bought in 2004 for conversion purposes• $2 billion: amount condo converters paid for apartment buildings in 2004 ($123,575 per unit)
• $1.6 billion: amount condo converters paid for apartment buildings through mid-May ($155,400 per unit)• $200,000: typical price per unit paid by converters in Miami
• $98,000-$105,000: typical price per unit paid by converters in Lee County• 22 percent: percentage of condo conversion units in Florida bought by foreigners over the past two years