Real estate boom leaves casualties
Condo conversions deplete rental stock in some cities
The New Bedford (MA) Standard-Times
By Glenn Roberts Jr.
Originally published July 2, 2005
Betty Armellino is a victim of the housing
boom. Armellino, 77, is disabled and lives on a fixed income.
She shares her current home, a three-bedroom apartment unit
in Las Vegas, with her daughter, who is a schoolteacher and
single mother.
Last year, the family was forced to move from another
apartment where Armellino had lived for about 16 years. The
apartment units were slated for conversion to condominium
units, and residents were given the option to either buy a
converted condo unit or leave. Armellino, a former New
Yorker, said she couldn't afford to buy, so that left her
with just one option: Move.
"It took us five months to get an apartment," she
said. The rent at her current apartment is $1,153 a month,
compared to the $865 per month at her former residence.
"We moved here because of the weather, and the cost of
living was cheaper. But now, they're in competition with New
York. Where the hell is my American dream?" She added,
"We have no rights as tenants - we never did. You're
forcing people out. The whole thing is absurd."
The home-ownership bonanza, driven in large part by
historically low mortgage interest rates and new forms of
low- and no-down-payment loans, has spawned a raging sideshow
in apartment-to-condo conversion projects. Cities in
super-heated real estate markets across the nation have seen
a growing number of these conversion projects, which can
jettison renters who do not have the means or the desire to
own their own home.
The predicament is that condo-conversion projects can bring a
supply of affordable for-sale properties into markets in
which many buyers would otherwise be priced out, so there is
the issue of balancing the supply of rental units vs. the
supply of affordable for-sale units. But this balancing act
is not always possible to achieve, as some cities have few
restraints on such projects and development interests can tip
the scales in favor of conversion.
Also, real estate price inflation brought on by the boom has
led landlords to seek higher rental rates. The Harvard
University Joint Center for Housing Studies, in its State of
the Nation's Housing 2005 report released this month, notes a
dwindling supply of low-cost rental units. "It is
increasingly likely that low-cost units will continue to
disappear from the supply. Stemming these losses will take
concerted efforts on the parts of federal, state and local
governments alike."
From 1993 to 2003, for example, the number of units renting
for less than $400 per month dropped 13 percent, and these
units are the only ones affordable to the 31 percent of
renter households with incomes below $16,000, the report also
stated.
And while about 3.3 million new rental units were built from
1993-2003, the total rental stock grew by only about 1.2
million units in that time. "This means that about 2.1
million newly constructed rentals simply replaced units lost
through demolition, abandonment, or conversion to owner and
non-residential uses," the report states. New rental
units tend to rent for higher prices than older units, too,
and those converted condo units that return to the rental
stock tend to fetch higher rents than typical apartment
units.
City planners in San Diego, which has seen a swarm of
condominium conversion projects in the past five years, are
wrestling with new restrictions for these projects. Since
1999, the city has received applications to convert about
8,600 rental units to condominium units, and plans for the
conversion of 6,364 of those units have been submitted since
February 2004, according to a city report. Those figures do
not account for the numerous apartment projects that have
already received approval for condominium units and do not
require any approval from the city to convert from rental to
for-sale units, the March 4 report states.
Coleen Clementson, general program manager for the city of
San Diego's Planning Department, said that since the city has
taken a look at whether to adopt tighter rules relating to
condo conversion projects, there has been "almost a
frenzy" in developers applying for conversions.
"We've done research and looked at other cities'
regulations," Clementson said. They do have more
stringent regulations in many cases."
In Oakland, Calif., for example, the city does not allow
conversions for projects with five or more units unless each
converted is replaced with a rental unit in the city. In San
Jose, developers must provide 1.5 parking spaces per
converted unit, and in Las Mesa, Calif., the city restricts
conversions to 50 percent of the annual average of new
apartment units constructed in the previous two years.
San Diego currently requires developers to pay a relocation
benefit equivalent to three months of rent for tenants who
are below the area's median income, though no relocation
benefits are required if the city's average vacancy rate
exceeds 7 percent in the previous year.
"The double-edged sword is that on one hand you may be
losing very low income rental units (through conversion) but
at the same time it is about the only opportunity you have
for first-time home buyers," Clementson said. "What
we've been struggling with is: 'Is there a perfect balance of
rental units to ownership units to have in a city, and if so,
how do you achieve this?'"
Jack McCabe, CEO of McCabe Research and Consulting LLC in
Deerfield Beach, Fla., said there are a "phenomenal
number" of apartment-to-condominium conversion projects
that are planned or under way in South Florida.
"There are an awful lot of displaced renters out there
right now who are having a difficult time finding a different
resident," McCabe said. He said he even heard a Florida
minister ask a church congregation to pray for three single
mothers who were displaced by conversion projects and
couldn't find a new place to live. "It's a great analogy
of what's happening now," he said.
"The land has gotten so expensive. All of the
condominium developers have been snapping up all of the
available multifamily development sites, and paying a premium
that apartment owners cannot justify," McCabe also said.
"Nowhere is it more prolific than in South
Florida."
In some cases, condo converters are not offering much
compensation to displaced renters, he added, and renters may
get as little as 45 days of notice about a pending
conversion. According to a report prepared by McCabe's
company, Palm Beach will have over 10,000 new condo units hit
the market within the next 30 months, Broward has 13,000 new
condo units due in the next few years, and the Miami-Dade
market has 25,000 new condo units due for completion by the
end of 2007, with over 60,000 units in the planning stages.
The number of converted condo units in Southeast Florida grew
from about 3,600 in 2001 to 17,100 in 2004.
The apartment inventory in the area has shrunk from about
171,000 units at the start of 2004 to 159,000 by year-end, he
said, and about 16,400 apartments will convert to condos this
year. "If you're a renter it's very, very difficult
right now to find a comparable apartment anywhere with the
same rent in a close location," McCabe said. The raging
for-sale market has driven up rental prices, he said, and in
some cases there are waiting lists to get into rental units.
"There are so many people that need help at this point
that it is going to require some type of governmental or
legislative change, because otherwise we're going to have a
large amount of people in the coming years that are going to
face a great difficulty in finding shelter or affording
shelter," he said.
Luciana L. Gonzalez, a spokeswoman for the city of Miami's
Planning Department, said the city does not keep tabs on
condo conversion projects. "We don't have a way to keep
track of it because they don't need any approval from the
city," she said. "Condo conversions are regulated
by the state."
Kristen Ploska, a spokeswoman for the Florida Department of
Business and Professional Regulation, said the state's data
does not track how many condo conversions were approved last
year or are currently in the review process. State law does
provide certain protections to existing tenants at rental
buildings that convert to condos, she said, "including
notice provisions, the right to extend their leases, purchase
their units and receive cash for a tenant relocation
payment."
David Orgel, a renter in an apartment complex in Arlington,
VA that is converting to condominium units, said he is
considering whether to purchase the unit that he has rented
for the past four years. Initially, he said, the news of the
conversion was unsettling.
"I thought, 'I'm going to have to move or make some
major change.' When I heard that they were going to be
offering discounts to the current residents, that made it go
down a lot easier. On paper it seems like a good deal because
of the way the market is," Orgel said.
He noted that he is probably in the minority among residents
who are able or willing to purchase a condo unit. "Most
people feel they can't afford to buy, for whatever
reason," he said. "Retirees, they are the most
unhappy ones -- the ones who have the saddest stories to
tell."
Orgel estimated that his monthly payments would range from
about $1,300 to $1,400 if he decides to purchase the unit,
compared with his current monthly rent of $940.
Other apartment buildings in the region are converting to
condos, too, and Orgel said he views this phenomenon as part
of a gentrification in the area.
"I have worse than mixed feelings about that. There has
to be rental housing. I don't know what's going to happen.
There are people who can't afford to buy -- the ante
continues to go up," he said.
Tameka Evans, a student who lives at the same apartment
complex, said she will be moving from the area soon, though
she does worry about the growing number of condo conversion
projects. "It didn't really bother me until I heard a
lot of communities in this area are being turned into
condos."
A former resident of the apartment complex, Gem Daus, said,
"I'm disappointed by the (conversion project). That
neighborhood is very diverse and that was one of the
attractions when I lived there."
Orgel said public agencies should step in to help regulate
the conversion of rental units to for-sale units. "State
and local governments have to get more involved --
particularly local governments -- and say, 'Look, you have to
have a certain amount of rental housing.'"