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Friday, December 14, 2007

Condo Conversions

by Calculated Risk on 12/14/2007 08:13:00 PM

The following story concerns how poorly the conversion from condos to apartments was apparently handled by a developer in D.C. From the WaPo: Condo Crunch

... Senate Square, was converting condos to apartment rentals. The Web site for the project confirmed the news with a new advertising pitch for "luxury apartments."
More interesting - at least to me - is this story fits with my analysis of the rental market. (See Housing Inventory and Rental Units)

Since Q2 2004, there have been 2.6 million rental units added to the U.S. inventory according to the Census Bureau, but only 773 thousand units completed as 'built for rent' since Q2 2004.

The other 1.8+ million rental units added must be older out-of-service units being brought back to the rental market, condo "reconversions", flippers becoming landlords, or homeowners renting their previous homes instead of selling. As I noted in the earlier post, this shows the substantial excess inventory in 2004 and 2005 that didn't show up in the new home or existing home inventory numbers at the time (although many of us thought correctly that there was a huge unaccounted for inventory).

The 2nd part of the WaPo story is grim:
Danah Leeson, a registered nurse, agreed to pay $615,000 for a two-bedroom condo at the Phoenix in Arlington in July 2005. She put down a deposit of about $31,000. But this summer, when she tried to secure a loan to complete the purchase, the lender told her she would have to come up with an extra $100,000 to make up the difference between the purchase price and the current value of the unit. "The lender won't give us more than the appraised value," she said.

Her choice? Find $100,000 or lose her $31,000 deposit.
Can you imagine a lender not wanting to loan more than the appraised value? How traditional. But Danah's choices aren't find $100K or lose her deposit. Her choices are renegotiate with the builder or walk away.