Condo Conversions Coming?

Is it time to consider condos again? Or more specifically, should apartment owners consider condo conversions once more?We asked all the 2010 census workers to once again knock on every door (ofCRE pros), surveying them on that very question.

The majority still say ride the rental wave--butnot by much. The opinions among Denvers multifamily elite mirrors this in many ways. And it may be only a matter of time before the desire to own surges back. I would say a majority of the upcoming demand will be from single, young professionals seeking to buy near downtown in the under-$250k price range, says Colliers Internationals Tim Trauth. (Rebelling against Generation X is just more fun in a place you own.) Apartment to condo conversions may be the best exit strategy for investors who purchased smaller urban buildings at sub-6 cap rates based on the projected infinite rent growth.

Madison & Cos Greg Johnson (left, with his partner Kyle Malnati) says the current market may be a precursor to new conversions, as stalled condo sales in 2008 are beginning to trade now. Greg says in the past year, his firm sold the remaining 39 condo units at a project that stalled near Cheesman Park. With rents as high as they are, apartment owners are thinking about conversion. "In 2005, building owners sold to condoconverters because they offered more than apartment investors did for buildings," Greg says. "But today, apartment investors are paying top dollar.

Seagate Properties'Mark Polite says this conversion trend could begin in the next 12 months. And much of that has to do with new construction and the lack of for-sale multifamily housing. Because of the scarcity of construction financing for condos, Mark says the market is encouraging apartment owners to consider conversions.