The rise of the condo converters is primarily fed by two factors: low interest rates and exorbitant single-family pricing that make condos an attractive alternative for first-time buyers, second-home buyers, and small real estate investors. “There are certain deals that you know you have no chance of getting because the condo converters are there,” Venterra’s Finch says.
Last Call? When interest rates increase, the pool of people able to buy homes—and, more importantly for apartment owners and managers, condos—will shrink. Consequently, the converters could disappear in many markets. “If interest rates shoot up, the condo guys will be gone,” Schwartz says.
But BRE’s Lange isn’t sure that a simple rise in interest rates will send the converters running to other opportunities. In areas where single-family homes are astronomically high, they will remain. “Interest rates have room to move before the window will close on condo converters,” Lange says.
FOREIGN INVESTORS
International Buyers Go Domestic Who’s Buying: News of the hot American apartment market has spread into other countries and continents, bringing investors from the Middle East, Europe, and South America. Whether it’s single condo units or buildings in Florida or large portfolios along the East Coast, foreign investors are buying American apartments. “They see safety in the market and a strong real estate economy,” says Marc deBaptiste, a principal in the Boca Raton, Fla., office of Apartment Realty Advisors, an apartment broker. “And, it’s easy to do business here. You can come into this market, and if you’re big and aggressive enough, you can buy some properties.”
Last Call? Unlike the 1980s, when Japanese investors scooped up trophy properties such as New York’s Rockefeller Center, deBaptiste doesn’t see foreign capital going away from apartments. “This is much more of a grassroots play,” he says. “They’re coming in and buying properties that make economic sense to them.”
So it stands to reason that they will continue buying if they find properties that make sense. But Linwood Thompson, managing director of Marcus & Millichap’s national multi housing group, says apartment executives and investors should not expect a flood of foreign buyers. “They’re slow,” Thompson says. “Some stuff will be on the market 30 days and it’s over. There’s a lot of money that wants to get here, but there’s also a lot of money already here and it’s closer to the race.”
PRIVATE INDIVIDUALS
I’ll Have That Shaken, Not Stirred Who’s Buying: As the stock market and other investment options slumber, wealthy individuals continue to move into the multifamily market—and they’re bringing their friends with them. “Right now, we’re selling a property in Las Vegas to a Beverly Hills-based syndicator that raises money from overseas,” Waterton’s Schwartz says. “He’s an individual, not a company, but he has access to capital.”
Last Call? Most in the multifamily industry believe that, if the markets change, these new apar tment investors will go in search of other investment vehicles. “As interest rates go up, they’ll become less of an effective competitor,” says Rich Robinson, a principal at Apartment Realty Advisors’ New England office. “They’ve become competitive because of the ability to leverage and to use debt to their advantage.”
But Thompson says some of those players will still stay in multifamily. “We have some private clients that are apartment people and will always be apartment people,” he says. “They’re not going anywhere.”
