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Will Condo Conversions Stay Afloat?

When condominium conversions began to accelerate a few years ago, most industry watchdogs dismissed it as a temporary trend, a function of the cyclical…

By Sule Aygoren Carranza | Updated on April 25, 2006

When condominium conversions began to accelerate a few years ago, most industry watchdogs dismissed it as a temporary trend, a function of the cyclical housing markets. Yet that view seems to have shifted as converters continue to make their presence felt.

To be sure, no other force has affected the commercial real estate market in recent years quite like condo converters. They’ve been a boon to asset sellers and a bane to buyers. They’ve driven cap rates down significantly and have bid so aggressively for deals that traditional investors have been pushed out of many markets. Now, as interest rates rise and sales velocity in the single-family residential market begins to cool, all eyes are on converters. Will their voracious appetite for properties continue, or will they back off? How will it impact the market? Is there a bubble, and if so, when will it burst?

All of these points have been widely debated in industry circles. While they are valid concerns, most experts believe that the impact from a condo implosion—if one does occur—will be minimal, at best. For better or worse, they maintain, condos are here to stay.

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