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Condo conversions make it tough to be a renter

As apartments become condos, people who aren't in market to buy are left to scramble. But many of those condos sit empty.

By JAMES THORNER
Published March 17, 2006

[Times photo: Brian Cassella]

Norma Jean and Neil Dobson, here with her mother, Gertrude Wechtel, center, lost their apartment to a condo conversion.

For a snapshot of the Tampa Bay area apartment rental market, consult the incredible shrinking apartment guide.

The Greater Bay Area Apartment Guide has shed 120 pages, from a pudgy 660 pages to a slim 540. And it happened in just 15 months, from November 2004 to February 2006.

Developers have spent the past five years converting more than 25,000 apartments to condominiums, depleting the stock of rentable property as the region's population has been swelling by an average of 3,500 a month.

Builders delivered about 1,500 new apartments to the market last year, but more than twice that number of existing apartments were turned into condos. As a result: rents are up. Apartment complexes are close to full, approaching a drum-tight 98 percent occupancy rate throughout the bay area. Renters have to hunt for bargains.

"Back in 2001-03, all these banners were flying at entry ways to apartments saying, "One month free rent or two months free, come lease with us.' Obviously the owner doesn't have to do that any more," said Jeff Rogo of the Bay Area Apartment Association.

Average asking rents are expected to soar past $800 this year, up from about $700 in 2002.

If all this is sweet news for apartment owners - those who haven't sold for condo conversion - it can be painful for people who want to rent instead of own.

The Dobson family experienced a double dose of conversion discomfort the past year. First they lost their apartment of four years as their complex, Coquina Key Arms in St. Petersburg, switched to condos in 2005.

Then they struggled to find a new apartment in a complex that hadn't been converted to condos yet. They settled on the Reserve at Lake Pointe in St. Petersburg, but the welcome was mixed. Their 2003 Dodge Caravan was stolen while parked outside the complex.

"We couldn't find anything anyplace else. And we looked far and wide," said Neil Dobson, a retired Methodist minister who shares a unit with his wife, Norma.

"It was very uncomfortable and very awkward, but we've gotten over it. We're moving on."

If there's hope for apartment hunters it's that the condo conversion craze seems to have crested.

And as most of the people buying individual condos have been investors, many are pouring those condos back into the rental pool, albeit at higher rents.

Tampa Bay area housing analyst Marvin Rose recently did a marketing survey for a client eager to plunge into condo conversions.

Based on the addresses listed on the deeds, about two-thirds of condo buyers weren't living in the units they bought.

"The amount of units taken off the rental market is not as much as it would seem," Rose said.

Average asking rents are expected to soar past $800 this year, up from about $700 in 2002.

Apartment Hunters, a free apartment finding service based in Carrollwood, notes the same trend.

"Some of these condo communities are converting back to renting," manager Rob Blumstein said.

Converters, many experienced hands from South Florida, have taken the Tampa Bay area by storm the past five years, an invasion not seen since the late 1970s. It's a rare month in which several condo conversion deals aren't announced.

The craze is most pronounced in Pinellas and Hillsborough counties. Stretches of Fletcher and Fowler avenues near the University of South Florida have become condo cities.

Swaths of Clearwater and St. Petersburg waterfront and Hillsborough suburbs like Brandon and Tampa Palms have converted.

"There are 12 active projects in New Tampa alone, four or five in Brandon, a dozen in Carrollwood," Rose said.

For many apartment owners, it's simply better economics to cash out to high-paying condo converters than to remain a landlord with the all headaches that entails.

Construction and land costs being what they are, having an existing building to work with can save condo developers millions of dollars. Developers typically renovate the units and resell them, sometimes for double or triple what they paid.

"What the condo conversion offers the converter is instant product," said Bob Goldfinger, a broker specializing in apartments with Marcus & Millichap in Tampa.

Large apartment owners like the Mahaffey Co. in St. Petersburg have succumbed to the siren's song. Mahaffey's big sale last year was Coquina Key, 1,006 apartments spread over 85 buildings on the bay. The company, together with a partner, made more than $110-million on the sale, but retains thousands of other apartments.

Real estate giant Cushman & Wakefield reported four times the volume of apartment sales in 2005 versus 2004, though the consensus is the market has peaked.

"I sold a billion dollars worth of apartments last year, most of it for conversion," said broker Byron Moger, based in Cushman's Tampa office.

Numbers provided by the Bay Area Apartment Association illustrate how condos have drained the rental pool.

Since 2001, Hillsborough has lost nearly 15,000 apartments to conversion, 15 percent of the total. Pinellas' apartment losses amounted to 11,000, 22 percent of the total.

While thousands of converted condos remain stuck on the market, they're viewed as some of the most affordable options for home buyers facing new home prices averaging more than $250,000.

High-rent addresses like New Tampa still have freshly converted condos for $150,000, although you'll get only 1 bedroom and 700 square feet.

Try finding a decent suburban house for $150,000.

"Maybe it's a good deal, maybe it's not," Goldfinger said about whether condos are worth buying. "But it's attainable."

For families like the Dobsons, returning to Coquina Key Arms, renamed by condo developers Waterside at Coquina Key, is out of the question.

As retirees, they're not keen on paying about $200,000 for a two-bedroom in a 35-year-old building they used to rent for $745 a month.

"All we'd get is a gutted-out old building," Neil Dobson said.

James Thorner can be reached at thorner@sptimes.com or 813 226-3313.

Apartments converted into condominiums in Tampa Bay area since 2001.

HILLSBOROUGH: 50 properties, 14,996 units, 15.3 percent of apartments countywide as of 2001.

PINELLAS: 47 properties, 11,000 units, 21.5 percent of apartments countywide as of 2001.

Source: Bay Area Apartment Association

[Last modified March 17, 2006, 01:57:49]