(To read more on the multifamily market, click here.)
POTOMAC, MD-Coldwell Banker Commercial Ideal Realty Group is gearing up for an increased number of conversion reversions this year. The group recently brokered the sale of a class B, 258-unit garden apartment community in Reston, VA for $40 million or $155,039 per unit.
The group is scheduled to close another deal, a 255-unit building in Baltimore, at the end of January or beginning of February. This building reverted to multifamily three months ago, team leader Dean Sigmon tells GlobeSt.com. The units average 1,400 sf and each has direct access to the garage.
Other deals in the group's pipeline include a building under construction that has reverted to multifamily and a 148-unit building in Manassas, VA., that the group is in the process of marketing.
Coldwell Banker Commercial Ideal Realty expects to see its conversion reversion pipeline double this year to at least five or six deals, says team member Allen Manesh. "We don't see any problem with absorption of these units. Vacancy rates average 2% to 3% in the Washington region. Also institutional investors still have a lot of equity they want to invest in DC."
But while the condo conversion market is clearly cooling off, reverting an asset to multifamily status is not necessarily a viable exit strategy, Manesh says.
One problem in valuing the deals, he says, are "shadow vacancies" which can obscure the true vacancy rate of a particular building. This refers to individual owners that are renting out their units.
Buildings that are only half occupied can also be problematic to convert, team member Tim Sabet adds.
Completely empty buildings are in high demand and receive good prices, he says. But when the units are partially occupied a buyer has to develop a strategy to buy out the occupants if they have ratified contracts. Some have gone ahead with an investment, developing the building into a part condo, part multifamily, he says.
Despite these potential problems, Manesh says, "we have no record of anyone losing money on these projects in the DC area."
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
