The Orlando Business Journal reports on bankers concern about the condo conversion rush. "Concerned about too many units going up for sale at once, lenders on Central Florida condominium conversions apparently are tightening some requirements while being more selective about borrowers and projects. Lenders and real estate observers say they are not yet seeing a major increase in problems with those condo-conversion loans, including defaults, but note that other factors may come into play before too long."

"'We have seen some folks pulling back,' says (banker) Joe Losch. 'Some lenders got in and may be getting out. There may be a time when there's a lot of supply in the market.'"

"A leading real estate expert warns that South Florida is already seeing a fallout from the condo-conversion craze, and the Orlando area could be headed down the same road before year's end or in early 2007. 'Those that rise fastest experience corrections long-term,' says (analyst) Jack McCabe."

"In the past two years, Orlando rapidly rose to one of the top five condo-conversion markets in the country. McCabe's research shows 23,800 conversions were announced during the last 18 months, seven times the amount for the previous 18-month period. The trend is not unique to Orlando. South Florida's condo market rose in a similar fashion and now is saturated, McCabe notes."

"Concerned about borrowers not being able to pay their loans, federal regulators in the meantime are reviewing lenders' condo-conversion portfolios in Central Florida, South Florida and other parts of the country, McCabe says. In addition, they are telling lenders to tighten requirements, and want not just pre-sales but stringent, firm contracts, he says."

"Mortgage brokers Robert Dockerty and Shannon Rex in Delray Beach expect some lenders might have to turn to investors to buy large numbers of units, which they would rent out. Those investors would include 'vultures' who buy a bulk of condo units at discounted prices."

"Dockerty says some condo converters and developers turned to that investor option during previous condo cycles. 'I have not seen it yet this time, but that doesn't mean it is not going to happen,' he says."

"McCabe says if too many apartment buildings convert to condos, Orlando could see project delays of nine months or more, foreclosures, and even developers and unit buyers suing lenders. If delays lead to problems with unit sales and cash flow for a converter, economic fundamentals make it unfeasible to turn a project back to a rental community and convert the development loan to an operating loan, he adds."

"As a result, McCabe predicts foreclosures will rise. And developers and condo unit buyers will sue their lenders. 'When properties get returned, they will sell at pennies on the dollar and lenders will lose millions on the loans,' he says."