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TAMPA TRIBUNE: Condo Conversion |
By DAVE SIMANOFF
dsimanoff@tampatrib.com
Published: Jun 20, 2004
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TAMPA - The extended home sales boom and historically low interest rates have tilted a lot of erstwhile renters in favor of home ownership.
It's not just the people who rent but the properties as well.
Apartment complex owners across the Tampa Bay area are converting rental units into condominiums for sale, capitalizing on the red-hot housing market at a time when interest in rental properties - particularly high-end rentals - is waning. The trend means more options for prospective home buyers. It's also creating opportunities for local developers and bringing investors who specialize in such condominium conversions to the Tampa Bay area for the first time.
"I just think that the condo market is so hot right now that people are trying to jump on it, '' said Cindy Taylor, head of Tampa-based CKT Development Co.
CKT is building ParkCrest Harbour Island, a 336-unit building along the Garrison Channel in downtown. The ParkCrest was originally planned as an apartment complex, but Taylor said she and her investors decided during construction to convert the project into condominiums to take advantage of buyer interest.
Sales began six weeks ago. Only two units - four-bedroom condominiums, both priced about $800,000 - were available as of Wednesday.
"We had high expectations, '' Taylor said. "We beat them all.''
The ParkCrest will be complete by the end of the year. Most condominium conversions involve properties that are established apartment complexes: 345 Bayshore on Tampa's tony Bayshore Boulevard was an apartment complex for three years before its conversion began in 2001. In Clearwater, 880 Mandalay Beach stood as an apartment complex for more than 40 years before it was bought in 2003 to be converted.
The top five condominium conversion projects in the Bay area account for a quarter-billion dollars of investment here, according to research by commercial real estate services firm Cushman & Wakefield. More than 2,500 apartment units in the Bay area were converted into condos last year. This year, 2,201 units have been converted, Cushman & Wakefield says. Vesna Vrcel, a breast pathologist at the H. Lee Moffitt Cancer Center & Research Institute and an assistant professor at the University of South Florida, is among the buyers fueling the trend. She said her family bought a three-bedroom, two- bathroom condominium at 345 Bayshore because it reminded them of their last home, in Manhattan, N.Y.
"For us, it was really important to have this sense of urban living, '' she said. "We looked for something in downtown and in Hyde Park, but we really liked this high-rise building.''
Vrcel moved into 345 Bayshore in October 2002 with husband Ranko Precip and their daughter, Hana. The family recently added a new member: a King Charles Spaniel puppy named Bentley.
"For us, having a view and a balcony and being able to see the city lights is something very important, '' she said. "It is magnificent. It is priceless.''
Economics 101
The sudden rush of condo conversions in the Bay area isn't too difficult to explain: It could have been lifted directly out of a textbook as an example of the laws of supply and demand. Right now, many people are looking for residential properties to buy because interest rates are low and because they see real estate as a better investment than anything offered on Wall Street, experts say.
The surge in demand is driving a national housing boom. The National Association of Realtors reported a record 6.1 million single-family homes were sold last year, and the association predicts 2004 will set another record with nearly 6.2 million sales. Meanwhile, the National Association of Home Builders said nearly 1.1 million new homes were sold last year, also a record. With so many buyers clamoring for homes, investors are buying apartment complexes and reselling the units as condominiums.
Byron L. Moger, a senior director at Cushman & Wakefield specializing in apartment sales, said investors do a lot of homework to find a property suitable for a condo conversion. They must study the local housing market and look at what buyers are paying for comparable properties in the area.
The investor must also consider how long it will take to sell all the units. A handful of state laws are designed to protect renters, allowing them to renew their leases for a limited time. Other laws require that renters be given the first opportunity to buy a unit.
About 10 percent to 15 percent of renters typically buy a unit when their property is converted to condominiums, Moger said. Expenses for investors include renovations and improvements throughout the property. The amount varies for every project. Marketing costs usually come to about $5,000 for each unit, Moger said. Different investors have different expectations for returns. Large national firms with a lot of overhead might hope for a $5 million to $10 million profit for each property.
The trend has attracted many kinds of investors. Some are national firms that have recently set their sights on the Bay area. Some are apartment developers looking to sell properties in the most profitable manner, and some are local entrepreneurs trying to capitalize on the housing boom. The conversion boom is also being fueled by investors and home buyers in search of bargains, said Toni Everett, a Tampa-based real estate broker specializing in luxury home and condo sales.
"It's true almost everywhere, but especially in the south end of Tampa, that land is becoming more valuable and houses are becoming more expensive, '' she said. "People who want to spend less, or who want less to worry about, are now going condo.''
The condo conversion boom doesn't mean the end of apartments in the Bay area. The number of apartments built each year outnumbers the number of units converted into condominiums, and many apartment owners won't sell their properties for conversion because they depend upon the regular income from renters, Cushman & Wakefield's Moger said.
`The American Dream'
The condo conversion boom in the Bay area began in 2000 when New York-based Crescent Heights of America bought Island Walk and Island Place on Tampa's Harbour Island for $59.2 million.
Crescent Heights is one of the largest condo conversion companies in the United States, with a portfolio that covers the country from New York to Los Angeles. The company saw the Bay area as a market where apartment complexes suitable for conversion were available and affordable and where demand for housing was high.
'' I believe that Tampa is relatively low priced compared to the country, '' said Shay Mayron, the company's regional manager.
Crescent Heights sold all 516 units at Island Walk and Island Place in less than a year and a half. The company's subsequent projects in the area sold out even quicker. Crescent Heights bought 880 Mandalay, a 350- unit apartment complex on Clearwater Beach, in July for $46.3 million. Four-fifths of the units were bought within a few days, Mayron said. The complex will soon sport a new name: Regatta Beach Club.
Crescent Heights' third project is the conversion of part of ParkCrest Innisbrook, an apartment complex built several years ago by CKT Development.The company's business strategy: buy and convert high- end luxury apartment complexes where the cost of a mortgage payment would be about the same as rent, Mayron said.
"We want to give buyers the American dream and pride of ownership, '' he said. "If they're renting today, and they can add a few bucks and own, that's good.'' Crescent Heights might have been the first to test the conversion market in the Tampa area, but it wasn't the only one for long.
The Bradford Group bought 345 Bayshore, a 220-unit building that opened in 1998, for $41.2 million. DelAmerican, another national company, bought the Grand Bellagio at Baywatch, a new 311-unit property in Clearwater Beach, in February 2003 for $55.4 million.
Zom Inc., an Orlando-based developer that owns several apartment complexes in the Bay area, is converting its Madison at St. Pete property in downtown St. Petersburg into condominiums.Kristi King, Zom's regional sales director, said many buyers aren't just looking for a good price - they're looking to live in the heart of a downtown area that has been revitalized.
"Everything that's happening here is a draw, '' King said. "People park their cars and don't drive all weekend. They walk to the parks, the museums, the shops. The location is definitely pushing sales.''
Zom converted the Madison at St. Pete into condominiums in two phases. The first phase, with 140 units, was handled by an outside firm and sold out in seven months. The second phase, which is being sold by a separate company set up by Zom, went on the market about two months ago. Of 137 units, 118 have been sold.
Taylor, of CKT Development, said she's seeing a lot of buyers with an interest in living downtown.
"I do think there's a move to more urban living, whether it's single-family homes or condos, '' she said. "I think people are tired of commuting from the outlying areas.''
Reporter Dave Simanoff can be reached at (813) 259-7762.
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