With a median-priced home in Scottsdale fetching more than a halfmillion dollars, condominium conversions are a trend that’s hitting the “West’s Most Western Town” in a big way.
Conversions subdivide rental communities and typically upgrade the apartment units before they are sold on the open market to individual buyers.
Last year, more than 2,600 rental units turned condo across Scottsdale, according to the Scottsdale Planning and Development Services Department.
“It’s sort of the hot thing to do at the moment,” said Jay Butler, a professor and director of the Arizona Real Estate Center at Arizona State University Polytechnic.
Because it’s such a new trend, Scottsdale officials are just beginning to track conversions separately from other types of planning permits, said Robin Meinhart, the planning department’s communication manager.
Experts and real estate agents say that with the median price of a home in Scottsdale reaching $525,000, conversions are appealing to buyers on several levels.
Valleywide, the median price of a condo hit $245,000 in December, which is much less than a singlefamily home in Scottsdale. It also marks a 32.4 percent hike from January 2005 when the median price of a condominium Valleywide was $185,000, according to the Arizona Regional Multiple Listing Service. With that kind of appreciation, condominiums can be a good investment, especially in trendy areas like Scottsdale, experts say.
“You compare that and say, ‘Can I buy a house in that area at $225,000?’ The answer’s no,” said Scott Crouch, owner of Keller Williams Southwest Realty in Scottsdale.
But if those prices for a condominium seem high, others fetch even higher prices.
Newly built condos or those under construction in Scottsdale’s central core, such as Optima Camelview, the Scottsdale Waterfront and Third Avenue Lofts can cost upward of $1 million, with some reaching $4 million or more, real estate agents say.
Many apartment communities are being converted to privately owned developments because of a combination of market forces specific to the Valley’s booming real estate scene, experts say.
“Condos used to be the doom and gloom kind of real estate,” said Tanis Duncan, a lawyer and expert in real estate and community association law. “But now, with the real estate boom being the way that it is, people are interested in buying condos again. And there’s a market for them.”
Although the supply of housing is growing, it’s still a fairly tight market.
“The market has shifted a little bit. Right now, there are about 26,000 listings available. At the height of the frenzy this summer, there were about 8,000,” said Dean Selvey, a broker with RE/MAX Excalibur Realty in Scottsdale.
As the owner of Condo Conversion Pros, Selvey also has been involved in more than 40 condo conversions across Arizona.
The number of listings contrasts with the abundance of rental communities that have seen relatively low rents and a fair number of concessions — offers such as the 13th month free used to entice renters to sign leases, experts say.
With those forces in play, Keller Williams’ Crouch says it makes sense for a developer to do a conversion.
“If there’s no inventory, its cost-effective for me to flip my apartment complex,” Crouch said. “Instead of me taking the negative cash flow on my apartment, I can convert it and make three or four times what the property is worth.”
Meanwhile, an individual buyer is intrigued as well, Crouch said.
“The consumer out there says, ‘There’s no place for me to live. I have to buy something.’ Even if it’s an apartment converted to a condo, I still get the tax write off and the price-point is $50,000 to $60,000 less than a singlefamily house,” Crouch said.
WHY BUY AN APARTMENT?
In addition to price, those in the market for a condominium want the extras without the maintenance or a long commute, said Monique Walker, a real estate agent with Intero Real Estate Services in Scottsdale.
“It’s the corporate person looking for a hub, or (it’s) a single female. And it’s close to the highways, close to the restaurants. For the snowbirds, it’s often closer to a golf course,” Walker said.
Since a unit often undergoes renovation before being converted, buyers can specify what they want in their own unit, Walker said.
“Buyers often want a new property, but since they might not be able to afford a new construction, a condo conversion is the second best thing,” Walker said.
“Most converters subscribe to the theory that the difference between the renter and the owner is the quality of finishes inside the condo,” Selvey said.
“In many cases, even affordable condos, you are seeing a high level of interior finishes, stainless steel appliances, granite countertops and high-end flooring.”
Renters who live in a community that is being converted into condominiums don’t have to worry about being kicked to the curb, Duncan said.
“A lot of people have this misconception that the converter comes in and says, ‘Be out by Saturday.’ That’s simply not possible,” Duncan said.
New owners of rental communities aiming to convert them into condos have to honor all existing leases for any of the units, Duncan said.
The lease’s negotiated rent also must be honored, and if the lease gives the tenant the right to extend the lease for another year, “they can’t do anything about that either,” Duncan said.
However, if you are a month-to-month tenant, the converter, like any landlord, has the right to evict you after your current month’s lease is up, she added.
Selvey believes the conversion trend will expand and won’t just be concentrated in Scottsdale.
“We always know that the bottom price of the market will rise the fastest. The sheer number of conversions and the number of people moving here will create a tight rental market,” Selvey said.
“Over the next year, we’re going to see rapidly rising apartment rents, so the result is it’s going to be about the same to own as it is to rent for the owner.
“For the investor, rental income is going to increase, so it’s going to draw a lot of investors back into the market because now it makes sense to buy and rent it out.”
But these initial numbers make it hard to predict whether conversions have staying power or are a just a passing fancy in a fickle market, said ASU’s Butler.
“It’s going to be interesting to see if we do make this shift and if condominium living becomes a greater share of our housing stock,” Butler said. “I would suspect that we are testing the waters right now.”