Condo Conversion Craze Could Slow Down in 2006, Expert Predicts

ORLANDO-Condo converters throughout the state continue to pay premium prices for existing apartment buildings in metro Orlando, but the hectic buying pace of the past 18 months could stall in 2006 as supply dwindles, projects Robert W. Miller, senior vice president, CB Richard Ellis Inc., Orlando.

"Condominium conversion will remain strong at least through first-quarter 2006, but may slow further into next year with the tremendous number of units now being converted," Miller says. "With more than 12,000 apartment units converted or in the process of being converted, the rental market is likely to reap the benefits in terms of higher occupancies and increased rents." Orlando improved its occupancy rate by 3.2% over the past year, "one of the strongest gains in the nation," the broker tells GlobeSt.com.

Condo converters have been paying an average $103,393 per unit for comparable apartment properties that averaged $74,671 in 2004, $54,814 in 2003 and $52,416 in 2002. Fifty-four apartment buildings containing 15,950 units have been sold to converters year to date, the same number as in all of 2004. The number of units converted in 2004 totaled 17,722.

Average asking rent is projected to rise by year end to $796 from $757 per month. The effective rent gain of 7.1% from June 2004 to June 2005 was the third largest in the country, trailing only Fort Lauderdale and Las Vegas, Miller says. Average rents have risen for seven consecutive quarters and could rise up to 10% at some properties by early 2006.

Second-quarter occupancy of 97.2% is up from 94% in the comparable 2004 period and could rise higher by year end, Miller tells GlobeSt.com. New apartment construction is expected to be the lowest in six years with only 4,300 units projected for all of 2005. A hike of 20% to 50% in building materials will be a factor in the development of new for-rent properties, Miller says.