Florida Condo Conversions ‘Saturate’ Market
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.”
The Sun Sentinel reports the trend is hard to slow down:
‘the CB Richard Ellis Central Florida Multi-Housing Group participated in $246 million in apartment sales totaling more than 3,000 units. Four of the properties were sold to condo converters. Nine were sold to income investors.’
Buy an apt complex, kick out the tenants, convert to condo, convert back to apts for rent. Try to attract back your old tenants with lower rents in a sea of apts for rent. “Vultures will pay big bucks for These buildings
putting the ARM on homebuyers
http://news.yahoo.com/s/usatoday/20060403/bs_usatoday/somehomeownersstruggletokeepupwithadjustablerates
getting concerned ?
better be really worried-everyone is looking at the taxpayer for bail
I don’t know if the goverment will pay out too much. If anyone suffers it will be that last wave of investors & speculators who can’t sell & loose their shirts.
The government will probably take over a lot of these conversions and auction them to property management groups or turn them into government housing.
Wow, Florida and Arizona are due for some major corrections .What a big mess .A bunch of false reading on what the demand would be ,(without investors/flippers).by the developers .
I live in Orlando, Saturated is an understatement. Some condo-conversions have been advertising like used car sales… 1-2 years off HOA fees, no closing costs & cash back at closing are pretty much standard. Some conversions are offering to “lease back” condos from investors for 2 years, one developement that has been for sale for a while had a sale a couple weeks ago offering the first year’s mortgage payments paid by the developer but only on the first 50 units sold that day… Scary a developement with 200-250 condos that has been for sale almost a year is making that offer on only the first 50 units for sale. Makes you wonder how many are left.
Many of these places are simply ghost towns, the longer they have been on sale the deader they are, empty parking lots, very few lights on.
They are way over priced. 3bed/2bath units typically go for 250K 2bed/2bath units go for about 205-210K and singles go for 150-160K.
You can buy a re-sale 3 or 4 bed 2bath home in this market for 250-275K. A 2 bed 2 bath town homes brand new go for around 210-250K. Prices on housing has been flat in Orlando since May 05. May 05 average price went to 240K, Feb 06 average price wasa 242K. Condo converters were banking on average home prices to hit 300-350K and make there condos look like bargains, does not appear they anticipated prices to remain flat.
My prediction, dozens more conversions hit the market driving it further into the ground, entire projects go bankrupt & companies like Equity & other major management groups buy apartment complexes out of foreclosure and turn them back into rentals. Anyone who bought one will be screwed and probably end up selling them to the new property manager for a low ball price just to get out while they can.
Very good report LinOrlando .
Its scary wizard, what blows me away is they are still anouncing conversions. New projects get announced every week here. You would figure the developers would wisen up and sell the entire unit to a property manager. I think some already have. I know the people I rent from just bought three that rumor has it were slated to go condo.
Most of these places are dumps too. Its kinda like saying ok we had 15-25% vacencies and could not even get $650 a month to rent them but lets turn these 40 year old wood frame death traps into “Brand New Condos” and sell them for 160-250K people would be more than happy to pay 1200 & up a month for the privilage of owning one.
The worst is the marketing, the pictures in the paper and online make them look like great places and in prestigous adresses like Winter Park, Heathrow, Lake Mary, Windermere, Baldwin Park, when really they are just advertising them as Winter Park or Baldwin Park condos but they the physical adress has them as Cassleberry, Orlando or Fern Park.
Sextuple whammy:
1) Apartment complex owners rush to convert apartments into condos.
2) Home builders rush to turn raw land into tract housing.
3) Amateur investors rush to dump their residential property investments before prices correct further.
4) Prospective buyers, newly educated by the press about the various perils of using high risk financing to buy homes at lofty prices, develop cold feet.
5) Lenders, newly alerted to the widespread perception that underwriting standards are under intense scrutiny, tighten up their loan qualification requirements.
6) Bond market participants, suddenly aware that yields are upwardly mobile, get out of the long end of the market, sending mortgage rates higher.
These six factors will mutually reinforce each other to make the coming real estate crash one for the history books.
Very true. I don’t know about you stucco, but I see some serious opportunity coming out of this
1. Condo conversions go bankrupt and units sell at auction.
2. Speculators and investors go into foreclosure and ruin their credit.
3. Mortgage lenders tighten standards and won’t allow anyone with foreclosures or serious credit issues finance homes.
4. I take money i have been saving, combined with an excellent credit rating and buy up condos out of foreclosure at massive discounts
5. I then rent them at inflated rates with huge deposits to real estate investors who went bust and can’t buy a home even to live in anymore and make money in real estate the old fashioned way, with positive monthly cash flow generated from rentals.
what makes you think you will get inflated rates ?
True, depends on what the rental market looks like.
But I figure just like subprime lenders, I would just take advantage of them when they are down on their luck… Figure after all that greedy house flipping they got it coming to them.
7. Tent cities spring up for bankrupt condo developers and “investors” dumb enough to buy the 2005 hype and overpay.
“You want it to be so, so you believe it.” (link posted:watcher)
Wow, what planet have these people been living on? This is exactly why if debt was foregiven today and everyone started off with equal assets, in less then 15 yrs we’d be right back where we are today.
O/T, The Weekly Standard weighs in on the bubble.
No political partisonship there, painting bloggers and liberals with the same brush!
But interesting nonetheless that the article pulls no punches about the current situation;
many are basing purchasing decisions not on underlying economic value, but on what they think they can sell a property for in the future–the very definition of a speculative bubble
and focusses on the need for political damage control.
But even a gradual reversal of the housing boom could result in sluggish economic growth and painful adjustments for those in the bubble areas who incurred too much debt during the run-up in house prices. Conservatives ought to seriously consider these risks so they won’t be surprised or caught flat-footed if a housing correction occurs.
I think the housing bubble is starting to occupy the minds of people on all sides of politics, particularly the possible implications for both the 2006 and 2008 elections.
Sorry I don’t see it like some of the rest of you. Since things are going to ratchet down in phases, the big boys (hedge funds world wide) are going to get first shot at the prime condo market properties. They have the monies and can act more quickly. The pickings for the rest will be SFH and such and even there the RE people will be first in line because of insider info. I imagine that it will take at least 3 yrs before some of the better SFH hits the market at a decent price because there will always be a greater fool jumping into the market on the way down and thus help bouy up the prices. The better buys will probably be in the vacation property first as people have to trim their budgets.
The doorbell just rang. It was a realtor trying to sell a house down the street. I’m sure they’ll stop this desperate behavior once temps crack 100 degrees.
Are you serious? Realtors are now going door to door trying to sell houses? I have to ask because it would not shock me after all the radio advertising going on to sell homes and condos here in Florida.
I have been getting postcards in the mail from “Parade of Homes” and other Realtor(tm) associations here in Central Florida….glossily showing the $hitboxes that they are desperate to offload in my neighborhood.
I never had postcards show up in my mailbox before; usually it was just newspaper ads and such. Now they are doing targeted mass mailings.
The doorbell just rang. It was a realtor trying to sell a house down the street.
If you put salt on them, they’ll ooze away and leave you alone.
OT:A good friend of mine and I were discussing the current real estate market yeasterday. He and his wife have been looking at homes for weeks and are quite frustrated at what is available for even $500,000. Now, mind you, they came from the Midwest and had 4 acres of land and a modest house for about $250,000. ( which they refuse to sell because they would ONLY net about $40,000 profit)
I KNEW I should not have offered my “opinion” when he asked what I would do. This was after he rambled on how he talked to several “experts” and they were all in agreement that although the current market was “soft”. it was only temporary before the NEXT wave of higher prices was to come.
So after he showed me home after home that were so insanely priced I literaly laughed out loud, I told him that there was no way I would buy a 1400 sq. ft house for $415,000, or any house at $250/ sq. ft. I also said that unless I was planning on staying in that home for at least 5-7 years I would just rent because it’s cheaper. I then said that you cannot compare a house in the Midwest to South Florida.
He get very red faced and then laid into me how you most certainly can compare the houses and there is no value here and that I was closed minded. I then did a very simple math calculation for him of renting vs. buying and that it would cost him MORE to own than rent over the next five years - even if that $400,000 shack went up $100,000 in value. He blew a gasket and told me that I was ” throwing away money by renting”, and that I was not building any equity, etc.
I forgot to mention that these people cannot manage to pay their current bills as renters and have ZERO money saved. They have CC past due, etc… But they are adamant they are “entitled” to own a home.
So this bubble has hit home for me. People that have over a 100% DTI, no money saved, a home up north they haven’t sold, an unrealistic expections wanting to own simply on emotions even after shown that owning NOW doesn’t make sense.
BigDaddy - Tsk, tsk. Keep your mouth shut, man. At the top of every mania, people get really pissed off at the naysayers. Don’t try to understand it, just button up if you want to keep your friends.
The best thing for me was being forced to relocate.Sold my old house in 2004 and moved to Salinas where housing was priced in the stratosphere. A first renting seemed foreign after 31 yrs of homeownership. Then came tax time in 2005 and yes I paid around $20,000 in rent but I didn’t pay that $4500/mo. or more in PMI and taxes, maintenance, etc, and my tax bill was about $1500 more after an $18,000 raise in salary. Until rents equal cost of buying I’m out of the market, loving it, and free to move on a moments notice.
Want to see how bad things are getting? Check out this Craigslist posting from one condo conversion:
http://westpalmbeach.craigslist.org/rfs/147456326.html
Here’s a snippet:
Final days of the developer’s closeout special at our St. Andrews at Boynton Beach condo conversion. The developer needs to close out this project and will now pay your 1st year’s mortgage for you! {mortage paid for 12 months after closing contingent on use of preferred lender (Countrywide), 10% down and 6.0% interest rate. Owner responsible for taxes and maintenance only for 12 months}. Buyer will also have the option of deducting the total developer contribution (the sum of the above mortgage payments) from the purchase price, or applying it towards closing costs and effectively eliminating them.
Not only that, but for the final closeout sale, the developer will pay your first year of HOAs/condo dues, waive the (1.75%) developer’s fee and include an all new stainless-steel kitchen appliance package!!! {all developer’s buyer incentives contingent on use of preferred lender}
They’ve been posting this almost every day for quite some time, claiming it’s just a matter of time before the development “closes out.” Obviously, buyers aren’t exactly trampling each other to get to the door and sign up.
Wow… Makes you wonder what investors are going to have to offer if they ever intend to sell.
That “special” has been around for a=over a month. If I remember correctly( Please don’t quite me) something like 200 out of 270 units are still owned by the development company after one year on the market.
Regardless, it is still a scummy way for the developer to claim they sold the units at “full price”, insted of reducing the sales price by the amount of the “discount.”
They failed to mention the 4-6 thousand dollar property tax bill on these units.
No matter how flashy the photography, apartment complexes are cheaply built, with none of the hurricane protection required of condos, so I don’t understand how these conversions can take place. Many Florid builders put up cheap apartments, and immediately convert them–thus getting around the condo building codes, saving fortunes, and making bigger ones. It’s such an obvious scam, how come regulators aren’t reacting?