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Saturday, August 08, 2009

Another Apartment-to-Condo Conversion Disaster

by Calculated Risk on 8/08/2009 03:47:00 PM

From the Las Vegas Sun:

The worst investment over the past year was apartment conversions ... [Larry Murphy, president of SalesTraq] said.

The worst of the that segment was the Meridian at Hughes Center on Flamingo Road, east of the Strip that was converted from apartments to condominiums between 2005 and 2007, Murphy said.

The property, which had a failed attempt at trying to convert into a condo-hotel because of Clark County regulations, sold for $604 per square foot when it first entered the market. The average price was $539,000, Murphy said.

Through June, the average resale price has fallen to $87,611 or $121 a square foot, Murphy said. With that drop in price has come rising foreclosures. Murphy reports that 201 of the 680 units or 30 percent have been foreclosed upon, and that number is likely to rise. The foreclosures have been running as high as 25 a month so far in 2009, he said.

Murphy said he’s not surprised apartment conversions have fared the worst because in essence some are 20-year-old buildings that have a new granite countertop.
And the lender for the purchase and conversion of the Meridian? Corus Bank. From 2005:
The Meridian consists of five four-story buildings containing 592,680 residential square feet.

Corus ... felt comfortable with the market as this large conversion represents the Bank’s 8th transaction in the Las Vegas area within the last 13 months. “The Meridian appears to be a natural candidate for a condo conversion ...” said John Markowicz, Corus Bank Senior Vice President.
Not only has the average price fallen 84%, but the current average sales price of $121 per sq ft is significantly below the price of the loan amount from Corus in 2005 (of $188 per sq ft) - before the granite counter top improvements.

The Meridian appears to be a natural candidate for reconversion back to apartments.