Condo Conversion Market Remains Strong

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SAN DIEGO-Although there’s been talk in recent months of a housing bubble hitting the San Diego area, a recent report points to the contrary. In fact, the multifamily housing market remains strong enough to outlast bubble fears, according to a report released by Burnham Real Estate.”The demand for condo conversions is expected to last as long as the economy and job market are strong and interest rates remain low,” says Mack Langston, a vice president with Burnham Real Estate’s Langston & Low multifamily team. “There is opportunity for rental owners to increase the value of their properties by obtaining a condo map.”Langston adds that the majority of converters his team are working with in getting condo maps “aren’t planning to sell or convert the property now; they just want to have more options available in the future. The cost of obtaining a map, starting at about $40,000, is relatively small compared to the potential increase in value.”Instead of a bubble, what’s happening in the market is an increase in supply is keeping properties on the market longer, according to the report. “As a result of the force of conversion activity in the past year, there are now more converted condos on the market than ever before,” says Cathryn Low, vice president with Burnham Real Estate.Low adds that the increase in demand is helping keep prices in check. “This increased supply competition is helping to stabilize runaway price escalation,” Low says.Converted condo units had an average asking price of $340,000 in the second quarter, according to a report by MarketPointe Realty Advisors. But those prices fell below those of condos in general, as the converted units are generally smaller, according to Low.The investment side for apartment sellers and converters remains bullish. “Owners who have sold apartments to condo converters have realized significant profits, up to 50% above average apartment sale prices,” says Low.In the first half of 2005, the average sales price for rental income property not intended for condo conversion was $131,000 per unit, according to Burnham. This figure is up 13% from $115,000 per unit in the first half of 2004, but only up 1.5% from the $129,000 per unit in the second half of 2004. The average sales price for apartments intended for condo conversion in the first half of 2005 was $189,000 per unit, up 11% from $171,000 in the first half of 2004, but only 1.6% above the $186,000 in the second half of 2004.