Condo conversions-reversions

Conversions to reversions. A bad investment. UGH!
One thing that worked during the housing boom was owners of apartment buildings turning them over to condominiums. Can’t say I blame them. Huge profits, don’t have to deal with tenants. Except some of them came late to that game.
Maybe they should have read an article like this one first describing the downturn in condo conversions. True it’s in Florida but the same thing happened here too:
http://www.floridahomeloan.com/2006/08/condo-conversions-reverting-back-to.html/
Here’s an excerpt:
Condo conversions nationwide peaked in September 2005 and by June of this year levels had fallen back to those last seen in early 2004, before the bulk of the conversions happened. Nearly 28,000 units costing more than $4 billion were converted in September, while only 3,354 units were converted in June at a total of $449.4 million, according to Real Capital Analytics.
From an article in the Grunion Gazette which is in Long Beach:
http://www.gazettes.com/condoboom07262007.html “In 2006, 1,073 apartments were approved to be converted into condominiums in 78 different buildings, and since 2004 more than 2,000 condo conversions have been approved. This year owners have sought conversions of just 350 units in 18 buildings, although half of the unit total comes from one building (110 W. Sixth St., near Pine Avenue)”. Yikes! With those type of numbers, trying to convert to condos right now is just utterly foolhardy. Fifty-six percent of LB’s 173,000 housing units are rentals. That’s a lot of people who just cannot afford the high prices on their wages. Prices are still going to have to drop to come back to affordability.
Here are a couple of examples in Long Beach:
http://www.redfin.com/CA/Long-Beach/1200-Ohio-90804/unit-4/home/12111632
This building has eight units. I can find 5 of them still listed after 95 days. Take your pick. Unit 1, 4, 6, 7, and 8. I’m not sure if the other three have sold since I didn’t find any info on those. Since the pictures are all the same for each one I’ll spare you the redundancy other than to say that who is going to jump into this knowing that their neighbors will be paying less when they get desperate to unload these? Throw in a $225.00 HOA fine with no amenities that I can see and you got a recipe for disaster.
I’ve read in some places that the owners “have re-converted” buildings back into apartment rentals after extremely poor sales. That doesn’t bode well for the poor sap that buys then finds a few months later it’s being converted back. I’m not sure what their legal options are at that point but I know it wouldn’t be fun going through that.
A question posted on Trulia asked If a condo conversion reverts back to rentals does it hurt my value?
Here is the reply posted by a realtor in Baltimore that I believe is right on:
The problem you may run into is that when you try to sell it, the buyer may have a hard time getting financing. Condo projects are either considered insurable or uninsurable by fannie mae. This makes a difference because Fannie Mae & Freddie Mac are the largest purchasers of loans on the secondary mortgage market and without their blessing, it can be difficult to find an entity to purchase the loan. Especially with the recent changes in mortgage guidelines, it will be more difficult to get financing for an uninsurable condo. Projects that are less than 50% owner occupied are considered uninsurable. You can check with the property management company as to whether or not the property is Fannie Mae insurable, they should be able to tell you. It is certainly possible to get financing on an uninsured condo, but your buyer has to be in excellent financial shape, and could be required to put more down than usual, so you might end up with a smaller pool of potential buyers. All of that could certainly hurt property values some.

It’s not that the units here in Long Beach look bad. Though describing the neighborhood as the Eastside or Circle Area is a stretch. This is the center of Long Beach where it gets to be a much more densely populated area. I would put Redondo Ave, as the furthest to go over and still label it “Eastside” but even that could be argued is a stretch. Here’s a better map of what is considered the Eastside:
http://www.lovelylongbeachhomes.com/map_areas_long_beach.shtml#EastsideCircle
The problem for these building owners now is to recoup their investment for remodeling these units. If they go back to renting them out they’ll probably be trashed over time and when or if this market recovers so it’s viable to sell them they will have to sink some more cash into remodeling again. Can you say fire sale?
Here’s another example:
http://www.redfin.com/CA/Long-Beach/1200-Ohio-90804/unit-4/home/12111632
Example #2: 3440 E. Ransom St, Eight units all listed in a row, all have been listed for over 190 days now as of this listing. Throw in a $237 homeowners fine and you can see why people in this neighborhood are renting instead of buying. I love the street name- “Ransom” That sure in heck doesn’t help. Conjures up pictures of Nigerian scammers and others asking you to fork over your hard earned money. Oh wait, that would be the realtor. Again, while these units are closer to the famed traffic circle area of LB this still isn’t Eastside to me. Another central high-density area of LB changed over in a Johnny come lately to the party attempt in cashing in on the housing boom.
The pictures look nice but there are no amenities and it’s in a neighborhood I wouldn’t be jumping on anytime soon.
So far sales have been one big goose egg after half a year. What does that tell you? Guess everyone else agrees.
Need another example?:
http://www.redfin.com/CA/Long-Beach/2925-E-Spaulding-St-90804/unit-204/home/12290785
These units are on 2925 Spaulding Ave. There are currently as of this posting 12 of these units for sale with different sizes and prices. They’ve been listed almost 180 days. That’s right folks. A half a year of no sales. The surprising point is that there have been no reductions either in an attempt to move these. Another building with a $207 HOA fine with no amenities. At least if I’m going to pay that give me a pool. This realtor was too lazy to put descriptions on most of the listings. On a one bedroom that is overpriced at 424 sq. ft. In fact in this description they put possible 2% back at closing. What do you mean possible? Either it is or it isn’t. I don’t know about you but give me a lower price over the 2% back as it will mean a lower tax base on the property every year. More savings in the long run.

Maybe buyers or investors are scared of what happened in Huntington Beach with the illegal condo conversions that involved an ex-mayor:
http://www.ocregister.com/ocregister/news/local/article_726105.php

These are just three conversions that were in denial about the housing market or drinking too much of that kool-aid spun out from people like Lawrence Yun of the NAR. Either way here’s another article from San Diego that showed conversions were a bad idea even two years ago:
http://www.voiceofsandiego.org/articles/2006/07/24/housing/974conversions.txt

On top of this we have luxury condo projects downtown not selling with some of them having exorbitant HOA fines of $700 or more. One place is trying to “auction” their units off. Nothing more than a euphemism for unloading these money pits as fast as possible. I guess that’ll be a subject for another day. Stay away from these condo conversions in LB or anywhere right now. If you’ve got money to burn give it away to a good cause.