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“It is the real-estate equivalent of turning lemons into lemonade. Take a condo project that isn’t selling and turn it into a successful rental -apartment property.” - Dec. 5 2007 Wall Street Journal, Alex Frangos. (Full Article)

Despite the drastic changes that have been happening in the real estate market, there are still individuals out there who are waiting for their pot of gold. I’m referring to those individuals out there who want to get land value for their multifamily property. They believe a developer is going to come into the area and purchase their 6 units on a 10,000 square-foot lot for some “above market” offer that is well above any sales comparables. I always ask these owners if they have gold plumbing or fancy toilets that would justify such a price. Yet, there answer is always “No.” I then ask what justifies their price. The answer I always get is the same, “You can build 9 to 12 condos on this property!”

The days of condo conversions are gone! The Condo market is in distress! The mere word “conversion” scares several investors out there. Many have gambled on these projects and are now realizing a loss.

“Many condo developers are desperate as they fall behind on their payments to banks for construction loans at a rapid clip. Delinquencies increased from 4.1% of loans outstanding in the second quarter to 5.9% in the third quarter.” - WSJ

What we are seeing is a “Condo Reversion.” Reverting condos back into regular income producing apartment units is a strategy that is being implemented across the nation, especially in the hardest hit markets of Florida and Arizona. The Mozaic Apartments at Union Station in downtown Los Angeles are a prime example of this in our own backyard. The 278-unit, 500,000-square-foot complex was introduced to the market as Luxury Condos with prices in the $600K range. After being unable to secure enough deposits, Lincoln Property Co. switched strategies and decided to market the condos as luxury apartments. Mozaic now leases studio, 1 bedroom and 2 bedroom floor plans ranging from $1900-$2700 per month.

Now it appears that others are following suit.

This entry was posted on Thursday, December 13th, 2007 at 7:05 pm and is filed under Commercial Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.