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Condominium deconversions are a hot topic in commercial real estate today, and I don’t think it’s just the latest trend. As condominium stock built in the 70s and older continues to age and need updates, modernization and capital improvements, owners continue to spend money on units that may not appreciate like they once did. Commercial real estate investors are also looking for alternatives to new development as construction pricing increases, amenity wars get more expensive and slow rent growth persists.
This combination of factors leads to the mutually beneficial deconversion process between Homeowners’ Association (HOA)/Condominium Association members looking for a way out and investors looking for value-add properties.
How do you know if your condo building is appealing to commercial real estate investors? What should you know about vetting offers from potential investors? From a multifamily broker with condo deconversion expertise, here are five key questions you should have answered about this type of real estate transaction.
How do you know if your building is a good candidate?
A typical scenario is where multiple owners have tried to sell and have been unable to achieve the desired sales price, or the building is coming upon a necessary and substantial capital improvement. Typical deconversion investors are looking for vintage construction — think 1970s and older — with a majority of the condo units being studio or one-bedroom floor plans.
Why would all the condo owners agree to a bulk sale?
In the condo deconversions I’ve brokered, owners receive a fair price for their unit, usually above what they would get if selling just their condo as an individual unit. They also each don’t have to find, hire and work with their own broker. Rather, the HOA hires a broker. In a bulk sale, brokerage and legal costs on a per unit basis are typically less than the cost of selling an individual unit.