When Is a Condo Sale Not a Condo Sale?

By Lewis M. Goodkin

In recent months, many real estate commentators have talked about the revival of Florida’s condominium market.  They point to the rising number of condo sales in overbuilt markets like Miami and Orlando as an indicator that multifamily housing is back in style. But it’s a big mistake to assume that rising condo sales means the market glut is over.

Our firm’s real estate market research clearly indicates that investors constitute the majority of recent condominium buyers in urban Florida markets. These include individuals purchasing a unit or two under distressed conditions, as well as partnerships and institutional investors picking up 20, 50 or 100+ units in a bulk sale.

While some of the large bulk purchases will result in product being offered for sale in the short term, most investors are planning to rent units out for several years before bringing them to market. I suspect that their expectations for future appreciation may be unrealistic, but the critical thing for everyone to recognize is that this condominium inventory may be “sold”, but it shouldn’t be forgotten. Just when the market to build new product looks promising again, you will be sure to see a flood of inventory from the thousands of units that are in the hands of various types of investors.

All of this is a now a boon to markets where the influx of renters has boosted retail sales and eating and beverage facilities. Downtown Miami is benefiting greatly from this phenomenon. This prime rental market saw much of its rental stock converted to condos before and during the build up to the housing bubble. Many of those that built huge condominium projects in Miami, lived well off rental buildings before the condominium surge. The question of how many of these renters will convert to owners of these units down the road will have everything to do with affordability. In most cases, it is well to remember that their rental payments are being partially subsidized by the owners of the units that they are renting. In short, most will be unable to make the transition into ownership at the investor’s anticipation of future pricing. Personally, I am betting that we will see new rental buildings under construction in Miami and other Florida urban centers well before we see new condominiums breaking ground.