Tucked away in South Florida’s heartland, condo developers in places like Kendall, Hialeah and Lauderhill are quietly suffering through the tail end of the economic collapse.
The numbers of inland condos greatly outnumber the beach condominium towers of national media notoriety. While the towers were reshaping the coastal skyline, developers were quietly buying up hundreds of rental units inland to convert into condominiums.
The buying boom began around 2000 when developers saw the advantage of converting rental units to condos. Such properties needed little to no renovations and could be converted to saleable units easily. At the height of the boom in 2003, lenders were on site, selling easy credit to renters, while developers offered them first refusal for sale of the property. Approximately 25 percent of those renters decided to buy. In many cases, developers made no changes to the units, simply flipping them over.
After the initial boom, the only conversion opportunities remaining on the market needed repair or renovations, yet developers still saw value in converting these properties, expecting values to continue rising. Unfortunately, the flood of conversions created an over-supply on the market just as the credit crunch was beginning to settle in.
When the market halted quite abruptly in 2006, there was little to do. Some developers reacted quickly, selling low and offering free upgrades and amenities. By 2008, those who failed to sell found their inventories were worth only 60 to 75 percent of the purchase value. These properties could not compete on the market against waterfront luxury condos offered at bargain prices.
No one is certain how many distressed properties remain on developers’ inventories, but estimates are about 10,000 to 20,000. Units in the middle of renovations sit empty because developers have no funds to complete construction and no way to rent or sell the units.
Today, many completed condo conversions are being re-converted into rentals. Developers have reconverted approximately 16,000 since the market crash and that number is growing. This has become the only way for investors to recoup some of the investment in the properties.
As it turns out, timing was a crucial factor in the success or failure of these developers. Those who reacted swiftly when the market stalled were able to sell some of the inventory and are weathering the down market by renting the unsold inventory; but for those left with units under construction, there remains little hope of a speedy recovery.
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