3 Comments

1. Tom Coleman January 21, 2006 at 14:15

   Many of those apartments converted to condos stay in the rental pool because they’re bought by speculators who rent them out.

   Some of the converted condos are sold to echo boomers (who would otherwise rent an apartment) because they’ve adopted the ‘buying is always better than renting’ mentality and oftentimes their boomer parents will help with down payments for the same reason.

   To the extent the condo conversions help improve supply/demand (from an apartment property owner’s perspective), it’s only because some speculators are unable to rent or professionally manage their real estate ‘investments’.
2. Jim January 22, 2006 at 22:04

   I was being a bit sarcastic re: the condo conversion, but I am curious – where are these big companies who are selling these developments, putting their money (and how might I capitalize on this shift)?
3. Tom Coleman January 22, 2006 at 22:36

   We try to re-deploy our capital into properties unsuitable for converters, because if they’re ‘convertible’, the purchase price is too high to provide an acceptable cash flow ROI. Example properties are those that may be older, have smaller floor plans, have debt that can’t be pre-paid, or have too many units for a converter to stomach the market risk.

   As for capitalizing on the shift, I don’t know. Sometimes the best investment is one you don’t make – meaning it’s just as important to avoid losers as to pick winners. Since I think we’ll see a substantial drop in condo prices (10%-20%), my wife and I skipped the ‘first home’ and went straight from an apartment to 3 year old, 4 bedroom, 3 ∏ bath ‘move-up home’. Essentially, we got a yard and 40% more square feet for about 10% less than a new town home in Short Pump. Of course, part of that discrepancy is because the Tuckahoe schools aren’t as highly rated as the Short Pump schools, but I don’t think that explains it all.

   I’ve read about hedge funds raising money in advance of the ‘condo crash’ so they can scoop them up later for cheap. Alternatively, you could short the stock of companies heavily involved in condo construction or conversions, but that’s a risky game.

   Perhaps, one could try buying a home near a nice apartment community with condo conversion potential and hope it gets converted. This is a ‘gentrification’ play because the converters improve the apartment finishes (hard-wood flooring, granite counter tops, premium lighting fixtures) and generally sell the units to people with higher incomes than the renters who were displaced.