Apartment buyers running out of properties to convert in South Florida
By Marilyn Bowden
Miami-Dade County leads the South Florida market in sales of apartment buildings to condo converters this year, but brokers say spiraling prices are prompting buyers to look at opportunities farther north.
According to a report from Cushman & Wakefield's Apartment Brokerage Services, 86% of multifamily units sold January through October went to condo converters, compared with 43% in Palm Beach County and 41% in Broward.
So far, converters have acquired 45 tri-county region properties containing 14,300 units, the report says, with a significant number of transactions pending.
With new condominium construction raising concerns about oversupply, condo converters have an advantage, said Brad Capas, a senior director at Cushman & Wakefield.
"At the moment, everything seems to be selling well," he said, "but converters have an edge because their timeframe is shorter. They can be in and out in 12 months or less."
Marcus & Millichap's Apartment Research Report said demand for apartment buildings to be converted to condos "is fueling transaction activity as aggressive investors seek opportunities and push apartment prices higher." According to the report, the median sale price has increased 4.9% this year and should continue to climb through year's end.
Cushman & Wakefield's research puts total sales for this year at $1.4 billion, exceeding sales for all of 2003 by 46%. The average price paid per unit, the report says, was 40% higher than at year-end 2003.
The median sales price in Miami Beach, attractive to investors because of its higher rents and occupancy levels, has reached $75,000 per unit, Marcus & Millichap reports.
Those factors are forcing condo converters to look elsewhere, said Cushman & Wakefield director Rosendo Caveiro.
"Condo conversion in Miami-Dade is getting tougher," he said, "because prices are so high that profit margins are getting very thin. So longtime converters in this market are moving north, even as far as Jacksonville, to markets where they can still make the margins they used to make in Miami."
In addition, he said, property converters prefer suburban apartments with large percentages of two- and three-bedroom units - properties that have been picked over here.
As a result, Mr. Capas said, the dynamic is changing. "Less-desirable properties with more one-bedroom units that they would have passed on a few years ago," he said, "converters will now buy because nothing else is available."
Mr. Capas said market conditions are such that unsuspecting owners are underselling some properties.
"Owners are jumping at unsolicited offers they can't refuse," he said. "While the price is well above what the owner would have expected, in many cases they would have been better-served by broader exposure to the many other buyers out there."