Monday, August 07, 2006

PhD in the Obvious
I have seen a number of recent articles about condo conversions being reverted back to rentals. Here is one from The speculative demand for condos led to more condos being built than markets could absorb. The excess condos are now being rented. Here are two quotes from the article:

"There was a huge craze," said Larry Leitzman, a Tampa-based research and marketing coordinator at Grubb & Ellis, a national real estate agency. "Everybody was taking apartment buildings and converting them to condos. A lot of them are reeling them back in and taking the apartments that didn't sell and converting them back to rentals."

Other markets that have seen reversions include Miami, Fort Lauderdale and Orlando in Florida, as well as Las Vegas, San Diego and Phoenix, according to Hessam Nadji, managing director of research services at Marcus & Millichap, a national real estate investment brokerage company. Between 25 percent to 40 percent of the condos being developed or converted in those markets are likely to be offered as rentals instead, he said.

This trend is not surprising. The article I want to read is the one about the speculators that used wild financing and are now stuck with mortgages where the rent does not cover the cost of holding the condo. My guess is that many of these are small, unsophisticated investors who invested without much forethought with the assumption that they could make a sizeable profit in a short period. The opportunity will be when these investors have to start selling.

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