Rental-to-condo conversions popular in Miami-Dade; developers try to maintain tenant costs
By Paola Iuspa
Hundreds of rental units in Miami-Dade County are being converted to condominiums intended to cost tenants a mortgage payment that is close to their current monthly rent.
Not all rental apartments can be easily converted into condominiums, developers say. The key is to find a building in fair condition so the developer doesn't need to invest too much in repairs and is able to sell units at a price that - when totaling mortgage, taxes, insurance and maintenance fees - the monthly payments equal the cost of rent, said Miguel Poyastro, a principal with Grec Conversions.
Mr. Poyastro recently bought Manhattan Towers, an apartment building at 6770 Indian Creek in Miami Beach. After a planned $3.5 million renovation the 328 units built in the 1970s will become condos, he said.
The $27.8 million waterfront tower will be renamed AquaSol, he said, and units ranging from 800 to 1,300 square feet will sell from $119,000 to $290,000.
Grec Conversions, with partner Agustin Herran of the Sedano's Supermarket family, are also about to sell out a conversion project started almost a year ago in Hialeah. The 396-unit Los Suẻos, built in the 1970s, has 335 units sold and the rest under contract. Two-bedroom units are selling for $95,000, Mr. Poyastro said.
"Before considering a building," he said, "we analyze how low a mortgage could be to be competitive with that building's rent. If what they pay in rent is about what they would pay monthly in mortgage and condo fees, then it is a good indication."
Because of the current low interest rates for home loans, lower mortgage payments are possible, he said.
His group finished or is in the process of converting three other apartment complexes in Bay Harbor Island, Miami Lakes and North Miami totaling 630 units.
"Their conversions create affordable condo options," said Michael Stein, managing director of the Aztec Group Inc., the real estate investment banking firm that helped put together financing of the Manhattan Towers and Los Suẻos.
"The conversion market remains hot," Mr. Stein said. "Some large and small buildings are being converted."
American Invsco of Chicago is transforming the oceanfront 115-unit Carlisle in Surfside, said Eric Mann, a company broker. About 65% of the units are sold.
Many tenants bought into the project while taking advantage of a developer's special program designed for them, he said. Units sell from $153,000 to $550,000.
"We try to make the mortgage payment, insurance and monthly maintenance fee even to what was their rent, " he said.
His group last year also bought and converted the 430-unit Yacht Club at Aventura, he said.
"We are in the process of pursuing different projects from Brickell Avenue to Fort Lauderdale," he said.
One of the largest conversions recently completed was The Waverly at South Beach, a 36-story, 399-unit luxury waterfront apartment tower, said Robert Kaplan, senior director at the Miami office of Holliday Fenoglio Fowler. His commercial real estate capital intermediary firm arranged part of the financing for the $100 million acquisition and condominium conversion. Athena Karlton SOBE, a partnership between The Athena Group of New York City and The Karlton of Miami Beach, are the new owners behind the building's transformation.
Alicia Cervera, a principal with Related Cervera Realty Services, the exclusive leasing agent for The Waverly, said 155 units are already sold.
"Half of those were bought by former tenants," she said.
The building has units ranging from 800 square feet to 2,500 square feet that sell from $200,000 to $500,000, she said.
Ms. Cervera said while there are not many converted condos in the market, many projects are in the pipeline.
Mr. Kaplan said The Karlton is about to close on a deal to buy the 230-unit Victorian Plaza at 6917 Collins Ave. Victor Posner, the financier and real estate investor who died a year ago at 83, owned the office building that is about to become a residential condo.
If the deal goes through, the recycled condo project would be named Collins, Mr. Kaplan said. While Karlton principal Gavriel Naim, refrained from commenting on the transaction set to close Jan. 7, he said his group, which only does conversions, was working on four other projects.
Putting the financing together for these projects comes easily for highly experienced developers with well-conceived projects and a sound market research including conversion cost and projected revenues, Mr. Kaplan said. Developers without that background are often required to personally guarantee the loans.
The success of a condo conversion lies in selling the units to the tenants already living in the property to be upgraded, said Michael Cannon, managing director of Integra Realty Resources AREEA/South Florida, a real estate valuation and consulting firm.
"The key of a successful conversion is to convert the renters to condo owners," he said.
Conversion was popular during the 1980s, Mr. Cannon said. Then developers moved away from that model to new construction.
But because of a drastic hike in insurance premiums and other expenses, it is hard to make profit from rental apartment buildings, said MaryJane Stone, a consultant at Mr. Cannon's firm. Unable to raise rents enough to cover their operating costs, many property owners are selling and developers and investors seem willing to buy, she said.
"Our phones ring off the hook," she said. "We get many calls a week from investors looking for rental apartments."