Deconversion: Coming Soon to a Condo Near You?
Various parts of the country are seeing an uptick in condo deconversions, with multi-unit buildings that were converted from apartments years ago reverting back to that status. Owners may have dollar signs in their eyes and dreams of avoiding the costs of long deferred maintenance or modern upgrades, but they need to have the full picture before pursuing the strategy.
“Buyers are looking to park their money somewhere, and the return on real estate has been good, especially as far as apartment rentals,” says Kelly Elmore, a principal in the Chicago office of Kovitz Shifrin Nesbit. “A lot of the buyers have realized they could purchase a building and convert it, and it was a lot cheaper than building new apartment buildings.”
Those investors aren’t limiting themselves to Chicago, where Elmore’s firm has steered multiple associations through the process.
“I’m seeing a lot of it in Southern Florida, and I think it’s only going to get more prevalent as a result of housing issues,” says Alessandra Stivelman, a partner/shareholder in Eisinger Law in Florida who focuses on real estate and association law.
She cites the new Fannie Mae mortgage requirements, unfunded reserves, and potential changes in the law in reaction to the tragedy in Surfside. “For people on fixed incomes who can’t afford to pay double what they’re paying now, it’s going to be a sticker shock.”
Deferred maintenance, pushed onto center stage following Surfside, is certainly a driver behind a number of these deals. “Some associations are at some level of distress, and owners are facing major capital expenditures and special assessments where maintenance hasn’t been done in years,” Elmore says.
Learn more about the hows and whys of the new trend toward deconversions: