Split Decision
For those who decide to offer rental apartments in a building halfway through the condo sales process, it’s a little bit like sawing a property in half– without the promise of putting the building back together again.
Managing a building for both renters and owners is a difficult task for the property management staff and residents. “If you have 200 units, and 100 of those are rental, it’s pretty inefficient,” says Tom Bartelmo, president and CEO of J.I. Kislak, an apartment owner and condo converter in Florida. “If you combine that with dealing with a condo board, which makes decision-making more drawn out, it would be less than ideal.”
Condo owners often aren’t happy either. “The quality of management will be much lower than it is for a building that’s built for renters,” says Steve Patterson, president and CEO of ZOM Development in Miami. “The basic perception is that renters don’t care for a building like someone who owns a piece of it.”
State laws can make the balancing act even tougher. California, for instance, taxes condos at a higher rate than rentals. It also has different rules for condos. When a developer builds, he could decide to keep some units and keep them out of an association. But in this market, he’ll generally sell them all and put them in the association. If the condo market changes and the developer or converter decides to hold them after he has incorporated them into the association, he’ll have to pay dues, like the rest of the owners. “It’s an added expense you won’t have with a normal apartment project,” says Jeff Stack, managing director and principal of the Sares-Regis Group in Irvine, Calif.
No wonder developers and converters often choose to sell their units at a discount. “They may lose money on the deal,” multifamily veteran Stack says, “but they could lose more by renting it.”
