Condo Conversions on the Rise

SAN DIEGO-It seems that condo conversion is the hot new ticket that San Diego’s investment community is clamoring for, as a recent report by Colliers International says the trend has picked up considerable steam this year.

“It is a very substantial phenomenon in the investment market right now, much more so than in the past 20 years,” Jon Busse tells GlobeSt.com. Busse, a Colliers’ senior vice president who prepared the firm’s multifamily report, points to low interest rates as a major catalyst for the recent condo conversion trend. Other contributing factors include the high cost of new construction (as it pertains to both condos and single family homes), as well as the diversified regional and local economy found in San Diego. In addition, many cities here are extremely amenable to condos in general. “It gives them a way of providing more affordable home ownership than what was otherwise the case,” Busse explains.

Other interesting findings contained in the Colliers’ report reveal that multifamily rent growth may be slowing, but sales prices are still soaring in the state’s southernmost county. Rents rose 5.8% in 2002, which is less than the previous 8% to 11% annual increases experienced here during the previous years. However, “investor demand for multifamily product is at the highest level since the time prior to the Tax Reform Act of 1986,” the report points out, adding that purchase prices have jumped more than 20% over the past year. So why the seeming contradiction between rental growth and price appreciation? The stock market, of course. Busse says that the stock market’s dreary performance has driven more money into the real estate market, which means that there is more capital flowing into the San Diego multifamily market than there are apartment properties to be purchased.

However, Busse does point out that not all multifamily investors are following this stampede into San Diego territory. There are some, he says, who are actually selling their San Diego apartment holdings and reinvesting in softer markets, such as San Francisco, Phoenix, Seattle and Las Vegas. “There perception is that there is better value there than here in San Diego,” Busse says.