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TAMPA, FL-Developers eager to cash in on the hot condo conversion craze sweeping the Southeast, and especially Florida, are bidding up prices for apartment properties suitable for redevelopment into more expensive condo homes, according to a new market analysis by the local office of Encino, CA-based Marcus & Millichap Real Estate Investment Brokerage.

“Apartments that would [normally] sell at $50 per sf to $70 per sf are selling for $120 per sf and up, and some units worth $60,000 as an apartment are selling at $100,000 a unit to condo converters,” says Steven M. Ekovich, first vice president and regional manager of Marcus & Millichap’s Tampa and Orlando offices.

Ekovich says condo conversion in the metro area is “limited in geographic scope and tends to occur in heavily built-up areas and along waterfronts.” More conversions are occurring in Pinellas County than in nearby Hillsborough and Sarasota counties combined. “Developers are forecast to bring more than 3,200 [converted] units online in the Tampa MSA this year,” the broker says.

Ekovich says the reduced level of new apartment development is “due primarily to a lack of available land, rather than constraints on funding. Developers are building suburban garden-style multifamily complexes that contain 200 or more units in submarkets located to the north of St. Petersburg and to the west of Tampa.”

The executive expects the vacancy level to decrease slightly by year end to 8.2% “as demand picks up in many central urban submarkets.” Ekovich says the decrease in vacancies is “due to units being filled by first-time renters with new jobs, as well as a bump in mortgage rates, which has stemmed the movement of renters to home ownership.”

North St. Petersburg, Largo and Westshore have low and improving apartment vacancies. “These submarkets are known for [their] amenities and large employment centers, which attract more affluent renters,” Ekovich says. Asking rents are forecast to reach $738 per month by year end, a gain of 1.9%.

Rent growth is fastest in Largo, Clearwater and North Pinellas with annual gains forecast at more than 3% this year. “Improving vacancy in the Tampa market over the next year will allow owners to regain the upper hand in tenant concessions,” the broker says. “Effective rents are expected to hold steady at $689 per month during the remainder of 2004 with increased projected for 2005.”

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