(To read more on the multifamily market, click here.)

PHOENIX-Eighteen months ago, apartment complexes were being snapped up at record pace by condominium converters. But in less than two years, the news focuses on what local experts have dubbed “reversions”–condo conversion complexes being brought to the sales block as income-producing properties.

Unlike other markets experiencing condo retreats, local experts say Phoenix converters aren’t losing too much in the process. Just recently, the 272-unit Laguna Hills at 4800 S. Alma School Rd. in Chandler brought in $38.5 million or $2.6 million more than SunVest Communities LLC had paid in early 2006. The Hallandale, FL-based company had invested $1 million into conversion upgrades when it decided to back down on the plan.

“We haven’t seen one sale that has yet traded for less than what was paid for it,” says Brad Goff, principal with Apartment Realty Advisors’ Phoenix office, who partnered with colleague Bret Zinn to negotiate the Laguna Hills transaction. “The rental market is bailing out the condo converter.”

That isn’t to say that condo converters are making a huge profit from their sales. “Most of them aren’t getting out whole because of debt and carrying costs, but they’re not getting hit as bad as they could have,” says Rue Bax, partner with ICC Real Estate in Phoenix. “But it speaks volumes of the market when these folks can bring these back to the market as apartment buys and not get hit too hard.”

The question becomes, however, is whether the sudden influx of apartment units will lead to sky-high vacancies and too much inventory. Goff tells GlobeSt.com 17,000 units of the metro’s inventory in the past couple years were targeted for condo conversion. Now, there are 9,000 coming back to the sales market as investment-income deals.

Bax, who has brokered deals for SunVest and other converters, estimates 25% of the properties originally targeted for conversion are being marketed to institutional buyers. And, the rental incomes are at the top of the selling points.

Neither pro foresees a glut of unfilled product. “We have 80,000 new jobs coming on line and an estimated population growth of 100,000 people,” Goff points out. “We’re filling up apartment units quickly.” He predicts 2007′s vacancy will end just slightly below 6% and just a shade above 5%, where it is parked right now.

The brokers agree there has been an increase in concessions as a result of the market turn. “If you’ve held back 30% of your units for conversion and want to lease those up, you have to recapture rents,” Bax adds. “The only way to do that in any kind of quick order is to offer concessions.”

But don’t expect concessions to stick around for long, Goff says. “It’ll be a short-term concessionary market until the inventory is soaked up,” he adds. “Then we’ll see a burn-off of concessions.”

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