Palm Beach Condos Go Back to Rentals

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Posted on Sun, May. 07, 2006
EVE SAMPLES Knight Ridder Tribune News Service A growing number of the "condo conversions" that eroded South Florida's supply of rental housing during the past two years are reopening their doors to renters. With the condominium market flooded, at least three Palm Beach County complexes have abandoned their conversion plans and turned back to renting, said Jack McCabe, chief executive of McCabe Research and Consulting in Deerfield Beach. They are The Enclave at Delray Beach, Orchid Lakes in Boynton Beach and San Merano at Mirasol in Palm Beach Gardens. In all, they represent almost 1,300 units. McCabe documented another 284 units in Broward County, and he suspects there are 500 more would-be condos reverting to rentals in the two counties. "We're undergoing a tremendous transition in the marketplace right now, and the sales velocity has slowed," McCabe said. Instead of letting units sit empty, "everybody's trying to figure out a way to get residual income in real estate," he said. In many cases across the state, that means renting. Since the start of 2004, the owners of 68 Palm Beach County complexes totaling more than 18,000 units announced they would convert to condos, according to McCabe's research, which examined complexes larger than 100 units that are not publicly subsidized. The resulting rental shortage has triggered a twist: Rent rates have gone up, making leasing a more attractive money-maker for some of the very developers who not long ago abandoned leasing. With condo sales slowing, the need for another source of revenue is especially pronounced, since most condo converters went with 12- to 18-month financing, McCabe said. To refinance with longer-term loans, developers will need income. Meanwhile, rent rates are jumping 13 percent to 40 percent after remaining relatively flat from 1999 to 2003, McCabe said. "I think that some developers and owners have decided that the best route to go is to go back to apartments, to fill them up," he said. That was the case for Kolter Communities LLC, the developer of the 476-unit San Merano at Mirasol. After announcing it would convert the complex to condos and testing the market with an advertisement, the company decided late last year that renting would be more lucrative, said Mary Kay Willson, vice president of marketing for Kolter. "It was just a business decision to leave it as rental," she said. The Treasure Coast also has seen hundreds of apartments converted to condos - and, now, some returning to rentals. The Estates at Stuart, a 237-unit complex off Kanner Highway that converted to condos last year, has opened a leasing office and is advertising its rentals on Web sites such as www.rent.com. A call to the office revealed seven- and 12-month leases are available for a mix of developer- and investor-owned units. Stuart real estate broker Mike Morgan said he thinks the owner, Philadelphia Management and Cos., was forced to return to renting because the condos - priced at $185,000 and up - didn't sell as quickly as expected. The company set a Martin County record when it paid $45 million for the complex early last year. "Eventually, it's just a matter of the numbers for all of these developers," he said. "If the numbers don't make sense, they go to leasing." Still, The Estates at Stuart apparently hasn't abandoned its sales efforts. Even as it advertises rental units for $1,100 a month and up, it's continuing to push its condos. Martin County property records show Philadelphia Management's subsidiary, Estates of Stuart LLC, sold about 100 of the condos through April 19. But the pace has slowed dramatically since the first units changed hands last fall. While almost 30 condos sold in September, 12 closed in February and five closed in March, according to property records.