Condo conversions missing from current South Florida real estate cycle
Question: What current rental projects are the likeliest candidates for future condo conversions in South Florida during this real estate cycle?
The condo conversion process, by design, offers immediate satisfaction for developers and buyers in the form of saleable units that can be created in a fraction of the time of building new condo projects.
For conversions to occur, developers typically purchase existing apartment complexes, submit the necessary paperwork to Florida officials and upon receiving state approval, file the declaration of condominium document in the counties where the projects are located.
Once the administrative requirements are complete, converters typically begin selling existing apartments – which may or may not be upgraded – as newly created condo units to individual buyers.
Given the speed of converting apartments to condo units, developers typically undertake the process when demand is growing and supply is shrinking.
During the last South Florida boom-bust cycle, developers converted nearly 1,000 projects with more than 93,650 apartments into condo units between 2003 and 2010 in the tri-county region of Miami-Dade, Broward and Palm Beach, according to the Florida Department of Business & Professional Regulation.
On a county-by-county basis in South Florida, developers converted 567 projects totaling nearly 43,500 units in Miami-Dade County, 285 projects totaling nearly 32,700 units in Broward County and 117 projects totaling more than 17,500 units in Palm Beach County.
In this boom, 17 rental projects totaling less than 650 units have been converted into condominiums since 2011 in South Florida.
To date, developers have converted 15 projects totaling more than 600 units in Miami-Dade, one 10-unit project in Broward and a 13-unit project in Palm Beach.
Developers have obtained “approved notices of intended conversion” for an additional 13 projects with an undisclosed number of units in South Florida.
Based on state records, the number of condo conversions occurring and in the pipeline in South Florida during this cycle is miniscule compared to the last boom for a variety of reasons, including financing challenges for buyers and rising rents being paid to landlords.
Another factor that could contributing to the slow pace of condo conversions in South Florida is the supply of new and existing condo units already available for purchase.
Developers have already proposed more than 290 new condo towers totaling nearly 40,000 units east of I-95 in South Florida, according to the preconstruction condo projects website CraneSpotters.com.
(For disclosure purposes, my firm operates the website.)
It is worth noting that hundreds, if not thousands, of other preconstruction condo units have also been announced west of I-95 in South Florida but obtaining an accurate estimate of the suburban market has proven challenging.
Besides the preconstruction product available, more than 20,275 condo units are listed for resale in the tri-county South Florida region, according to data from the Southeast Florida MLXchange.
In the first 10 months of this year, buyers purchased an average of 3,050 condo resale units per month in South Florida. Based on the sales pace to date, South Florida has about 6.6 months of condo resales available for purchase in the tri-county region.
On a county-by-county basis, Miami-Dade has nearly 9,700 condos listed for resale, representing about 8.1 months of inventory. Broward has about 6,400 condos on the resale market, which works out to about 5.9 months of inventory. In Palm Beach, less than 4,200 units are on the resale market, representing about 5.5 months of inventory.
A healthy market typically has about six months of resale inventory. Additional months of supply suggest a buyer’s market, while fewer months indicate a seller’s market.
It is practically impossible to predict which South Florida rental projects could be converted into condominiums in the upcoming months and years.
What is clear is where developers are planning new condo towers east of I-95 in South Florida.
Developers have proposed 191 new condo towers totaling nearly 28,500 units in Miami-Dade, nearly 60 towers totaling more than 7,500 units in Broward and less than 45 towers totaling about 3,665 units in Palm Beach.
The unanswered question going forward is whether developers will attempt to convert existing apartment projects into condominium units in the South Florida markets that are currently experiencing less preconstruction activity.
Peter Zalewski is a real estate market consultant, non-practicing licensed real estate broker and columnist for The Real Deal who now answers reader questions about the South Florida real estate market in a new weekly Friday column. Questions and comments can be sent to email@example.com. The TRD editors will choose which submissions will be addressed.