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DALLAS-The nation’s most-talked about multifamily product has notched its first mark on Dallas/Fort Worth’s quarterly reading.

“This is the first time, we actually saw an impact from condo conversions,” Greg Willett, vice president of research for M/PF Research Inc. of Carrollton, tells GlobeSt.com. “The condo conversions, at least a little bit, softened the blow of new supply.”

Willett says the amount of multifamily product being converted to condos has, until now, been fairly equal to the new units coming on line. “This time, we took out more than we brought in,” he says. In the past year, he estimates 1,000 to 2,000 units have been pulled from the rental market for condo conversions. That’s sure to change going forward.

With overall occupancy up just a shade to 90.1%, a reduction in the number of apartments isn’t particularly bad for the region. “Anytime you can reduce the inventory, that helps,” Willett says. Dallas proper ended the quarter with 90.2% occupancy and Fort Worth finished with 89.8%.

Willett says Q2′s “lackluster” showing was somewhat of a surprise after a strong Q1. Rental demand outpaced completions in the second quarter, but monthly rates continued to decline. The Dallas-area monthly rent dropped 3% to an average of $694. Dallas proper dipped 2.8% to $674 and Fort Worth slipped 1.6% to $619. M/PF counted 2,466 completions in Q2; demand was 3,310 units. The third quarter began with 11,700 units under construction, the lion’s share set to deliver in 2005.

Condo converters and developers’ best barometers are rental market fundamentals and, of course, interest rates. “This year and next, condos will be an influence,” Willett says.

So far, conversions have been confined to both metros’ CBDs and fringe, eclectic neighborhoods, but high-end suburban properties in key submarkets are now under the magnifying glass. Though it’s been rumored for months, the decision is still out for Palladium USA’s Grand Treviso in Las Colinas. In North Dallas, the 207-unit Townhomes at Parkside at 4000 Parkside Center Blvd. has come to market as a prime candidate to be picked up by a converter.

Don Ostroff, senior director for Cushman & Wakefield’s Multi-Housing Group, says the Townhomes at Parkside’s developers considered a condo conversion a strong likelihood when it was built five years ago on 17.3 acres, a classic urban infill location in a supply-constrained market in the heart of 3.6 million sf of retail, including the Galleria, and 4.8 million sf of office space. He says the Dallas developers decided to sell the debt-free asset because the rental market is turning, offering appeal to traditional apartment buyers, and condo demand is spiking, making it a likely target for a conversion buyer.

Ostroff says it’s too early to tell if the listing will attract more converters than institutional buyers. But, he’s predicting interest will run high since it’s the only class AA, suburban, garden-style complex with a dual-pronged sales hook on the market.

Ostroff and Will Balthrope, C&W’s other multi-housing senior director, are handling the sale. The offer deadline is Aug. 1. The closing is planned for early October.

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