The prevalence of Miami condo conversion are part of a condo crush that catalyzed the nation’s housing boom that is buoyed by active investors from the U.S. Northeast, Latin America, and Europe. These investors are focused on acquiring properties in Miami because of its worldly feel and relative affordability.

      According to National Association of Realtors’ statistics, 960,000 condos sold until the second quarter of 2005, 12.4 percent more than all of 2004 and up 46.1 percent from all of 2002. Average condo prices also boosted by 14.8 percent from the previous year, and by 57.1 percent from four years prior.

      Incredibly low interest rates over the past 12 to 18 months have allowed an catapulted number of renters to become condo owners. Consequently, Miami's apartment market has suffered both in the suburbs and downtown. In 2002 alone, 1,909 apartment units were completed but there was a negative absorption of 1,164 units. In the first quarter of 2003, another 368 new units were completed, but the demand drought carried on. The result was a negative net absorption of 1,085 units. Miami condo conversions may already have induced a significant impact on the Miami’s rental market by constraining the available supply of rental apartments. The rental vacancy rate for Miami-Dade's apartment market was 6.6% in the first quarter of 2003.

      The low interest rate affliction that has crippled apartment fundamentals for several quarters is driving the biggest Miami condo conversion boom in two decades. Condo developers are swarming markets across Miami, paying high premiums to acquire and transform apartments and other rental units into condominiums. While the successful sale of condos potentially generates cash-on-cash returns within 15%-30% or even more in a matter of months for Miami condo conversion dealers, the same trend also allows apartment owners to cash out at the top of the market. Moreover, condo conversion has the potential to build more affordable housing in areas notorious for exorbitant single-family home prices.

      The skyrocketing Miami condo conversion market lures foreign investors. According to Real Capital Analytics, there were 60,844 apartment units bought in 2004 with the intention of turning them into condos, compared to 15,806 the year before and just 5,865 in 2002. One unique support for the hot Miami condo conversion market is the strong appeal to Latin American investors in the Miami’s pricier condominiums. Latin Americans may comprise more than half of all high-rise condominium buyers. These buyers have been drawn in through extensive South American sales networks sustained by some Miami-based real estate brokers.

      In general, Miami condo conversion is taking place at a feverish pace now. The number of apartment buildings valued at $5 million or more that were bought for condo conversion in the Miami-Dade area rose from four in 2002 to 11 in 2003 and nine through mid-June 2004, according to Real Capital Analytics in New York. Real Capital also estimates that the dollar value of the deals has also grown by 77% through mid-June 2004. The percentage of overall building sales earmarked for conversion has also risen up, from about 33% of the market in 2003 to nearly 50% through mid-June 2004. But by dollar value, Miami condo conversion already constitutes over 67% of 2004 transactions.

 Earl Juanico

Miami Real Estate