Condo Market Recovery

Condo Conversion Blues

by Greg Martin, CPM

The following is an excerpt from the Mar/Apr 2008 issue (Volume 73, Number 2) of JPM®, Journal of Property Management.

Two years ago your clients wanted to cash in on the hot condo market. They found great properties right in the heart of the city. They put in all the classic condo upgrades - they had hot products in a hot location. Initial sales were good. Life was good. Then the market went soft and they could not give the units away. Now the mortgagor is burning up the telephone line asking where the mortgage payments are.

Does this sound familiar? Have you heard of pending foreclosures in the market place? Are you worried that you, or a client, may get dragged into this fiscal mess? As a trained and skilled CPM or real estate manager, you can manage these scenarios in a manner which will benefit your client and add fees to your portfolio. Organization and a disciplined, professional approach are your keys to creating a positive way out of a spiraling black hole.

Assess and Understand Client Objectives
The first step is to hold an initial meeting with your potential client to determine what is being developed or worked on, and what the company objectives were and are now. Be prepared to have a reality session with the client as the strategy may need to change. You might want to have a representative from the lender attend the meeting. This person may be the voice of reason that can help get your point across to the developer about strategy change. More than likely the client is not going to get out of this problem completely, but you can help perform damage control and prevent money loss moving forward.

In this initial meeting you need to find out how far down the line the developer is in the conversion process, and how the condominium declaration addresses unsold units and management of the common areas. Hopefully the rules allow the unsold units to be rented out. If that is not the case, no further steps need to be taken, as your options are limited to just keeping common areas expenses as low as possible. Assuming you are still moving ahead, you’ll need to determine answers to the following questions with the developer:

• How far along is the developer in the sales process?
• Has the complex been turned over to the condominium association?
• If the complex has not been turned over to the association, when will that occur? Will the turnover be determined by sales or time span?
• What are the restrictions on rental as it relates to sold and unsold units?
• What is the status of expenses (are they paid)? Can a cash infusion be obtained? (Note: If cash will not be available, you might as well end the meeting. You cannot act as a lender.)
• Are the unsold units finished, and have they gone through a punch list to determine rentability?
• If the units are not finished, who will finish them or punch them out?
• Is there a separate staff for sales and construction?
• Does the client have unrealistic expectations?

The full article is available as an online exclusive in the Mar/Apr 2008 JPM® issue.

IREM Members have free access to the JPM® online archives and the “Online Exclusives,” articles that are only available on the IREM Web site. Non-members can subscribe to JPM® at www.irem.org/jpm.