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NEW ORLEANS-While the multifamily asset class continues to attract its share of national and international investment, the condominium craze that was so hot even a year ago is officially over. Experts predict that, over the long term, demand will increase for rentals, spurring more construction and investment nationwide.

M/PF YieldStar Inc., based in Carrollton, TX, recently hosted its first US multifamily markets conference, picking New Orleans as the host city so industry leaders could see first hand the work that’s under way and still to be done. “We thought people would be interested in seeing New Orleans,” Greg Willett, M/PF’s vice president of research, tells GlobeSt.com. Part of the roundtable conference was devoted to Gulf Coast rebuilding efforts, but more so to provide a look at the big picture for M/PF’s 57-market network.

Private buyers continue to be leading the market’s investments although more institutional players are starting to step up, says one panelist, Don Ostroff, senior director with Cushman & Wakefield of Texas Inc. He says interest rate increases have pushed up leverage and institutions are better able to handle it.

“Institutional investors have been interested all along, but they’ve been blocked from the market because condo converters snapped properties up,” Willett adds.

The two experts agree that condominium converters and investors trying to outbid others for the choicest properties are a thing of the past, at least in this cycle. Real Capital Analytics’ data shows investment in conversion assets plunged from $30 billion in 2005 to $9 billion in 2006. “If you look at any of the billions of condo conversion sales in 2005 and 2006, they fell by 60% or 70%,” Ostroff tells GlobeSt.com.

Much of the problem involved too much supply, too little demand and too many investors snapping up single units and attempting to flip them to end users. “What we saw even three years ago was that the majority of condo buyers didn’t even live in the place,” Ostroff says. A newly built condominium in South Florida was sold out in a matter of weeks. “But, it only had 24% occupancy because no one was living in the units,” he adds.

Along with South Florida, Las Vegas and Washington, DC ended up hardest hit in the condo arena. On the other end of the spectrum, Texas markets escaped most of the fall-out. “They didn’t do much on the condo side in Texas,” Willett says.

The question becomes what will happen to the empty units. Ostroff and Willett predict that some will likely end up in the rental pool. What’s uncertain is how many will end up there, which is making supply predictions difficult in the coming year.

“We just don’t know what the supply will be,” Willett acknowledges. “With so many condos out there and the market off, we don’t know if those condos will come on line as apartments or not.”

Willett and Ostroff suggest that over the long term, fundamentals are terrific for more multifamily investment. Ostroff says the graying of Baby Boomers on one side and the coming of age of their children ensure upscale senior housing and multifamily properties will continue to do well. Also a factor is increased immigration because newcomers are more likely to rent than buy during their first years in the US.

“A big factor is that we’ve had a run-up in single family home prices,” Willett explains. “The cost differences between renting and buying is larger than it’s ever been.”

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