Cool Condo Conversions

They’re the hottest thing in real estate today. Here’s why it pays to invest in one.

In the market for a new home or real estate investment? These days, condos are hot, particularly among first-time single home buyers and baby boomers approaching retirement age, and one of the latest trends in the US housing market is the rise of condo conversions over new construction.

What exactly is a condo conversion? The term refers to an apartment complex or other building that has been remodeled and established as a condominium, with all units sold individually. The exterior walls of the original structure remain, often with new siding or paint. Interior remodels can be as minimal as new paint and carpet, or as involved as a total gutting. Most interior conversions fall somewhere in between and include new cabinets and counters and upgraded flooring. So, although the condos look brand new from the walls out, what’s behind the walls may have seen significant wear and may not meet present-day building codes. In the real estate marketplace, conversions take a place somewhere between resale and new construction—an important point to consider when buyers become part of the homeowners’ association and take on the responsibility of maintaining the older components of the building.

Why choose a conversion? For a buyer, the advantages are price, location, ambience and/or preservation of architectural features not found in newer buildings. For both buyers and seller/converters, there is the benefit of quick closings—usually 30 to 90 days from the sale date, as opposed to the minimum of six months (but typically one to two years) for newly built structures, which can’t be closed until a certain percentage of the units is completed.

In cities across America, condo conversions are frequently the most affordable segment of the housing market. In 2005, the top markets for condo conversions included Los Angeles, Las Vegas, Manhattan, Fort Lauderdale, Chicago, Orlando, Tampa, Palm Beach, Miami, Washington, DC suburbs, the San Francisco Bay area, Seattle, Jacksonville and Boston—all areas known for their upwardly spiraling housing costs.

Janet Moyles, a realtor with Illustrated Properties in Palm Beach Gardens, Fla, says the relative affordability of condo conversions in this ritzy area means that new communities are often sold on a lottery system. She notes that many of the complexes being converted in her market are only a few years old and merely require cosmetic updating rather than complete overhauls, providing even better value.

Jeffry Kern, broker and president of Embassy Realty Services in Jacksonville, FL, estimates that conversions accounted for 30% of his company’s sales in 2005, largely because they are priced at 15% to 20% less than new constructions of similar square footage and location. He notes that within the last five years, all the premium rental communities, especially in the beach areas, have been converted to condominiums.

Another example of location value is found in urban centers, particularly in newly trendy neighborhoods. Downtown Los Angeles is just such a case. There, developers are turning formerly obsolete commercial buildings into hip new residences, which are being snapped up by buyers. In the Little Tokyo district, for instance, the historic Westinghouse Electric Co. building has been converted into Little Tokyo Lofts, a condominium consisting of 161 open-style lofts, while preserving the building’s historic exterior. Owners can walk to restaurants, galleries, coffeehouses and entertainment venues, and take advantage of the chance to be in on the ground floor of a developing hot new neighborhood.

Older hotels are seeing a similar rebirth. One of the most famous of these is New York City’s Plaza Hotel, which, when its mega-bucks makeover is completed later this year, will have converted 805 former hotel rooms into 200 condos and 150 hotel rooms.

Since the 1970s, the Las Vegas Country Club has been home to numerous celebrities, including a few Rat Pack members. It is also home to people like Jennifer Eggen, a nurse who rented a unit in the Village Green Apartments. When the complex was converted and renamed “Monterey” in April 2005, Eggen and many of her fellow tenants jumped at the chance to become homeowners. By February 2006, over half of the 551 condos had been sold—and had risen 40% in price. What’s made this such a hot property? Marianne Pepe of the Ryness Company, which handles the sales, says the uniqueness of the location is key. Only one block from the Strip, Monterey’s ambience is quiet, and its long-established, lush gardens couldn’t be replicated by new construction because of present-day water restrictions in this desert city.

Will the condo conversion mania last? A crucial factor is availability. Once the “A-list” properties or locations in an area have been converted and sold out, those that are left are generally less desirable and might not have the same cachet. So, if you think condo living is for you, get ’em while they’re hot!

Words by Wendy Lemlin