Orlando – Cracks are beginning to show in the condominium boom, which continues to drive the city’s real estate market.

Condos are now overpriced as interest rates continue to increase for all single-family homebuyers. Faced with a more difficult sales market, some condo owners “are reverting their units back to apartments and renting them … taking the loss to offset the investment,” said Laura Yoder, executive vice president of the Apartment Association of Greater Orlando.

In addition, “many owners are inexperienced with condo fees, assessments and rehab on older properties,” she said.

The number of “flippers” – buyers who don’t live in their condos but instead sell them to cash in on rising property values – has reduced somewhat, she added.

Regardless, new investors continue to jump on the condo conversion bandwagon, driving occupancy rates for apartment units up to 96% to 98%.

There is a tremendous amount of conversions of new and old properties, said Yoder. She expects to lose 20,000 of the 130,000 apartment units in her association’s membership by the end of next year.

Newer properties hold steadiest

Occupancy jumped 2.1 percentage points from 2004 to 2005, with this upturn including a 0.6-percentage point improvement between June and September 2005, according to M/PF YieldStar. The strongest apartment properties were those built since 2000 and during the 1990s.

Apartments built during the 1990s were 98.3% occupied in the third quarter of 2005, while units built since 2000 posted a rate of 98.1% during the same period, said the market research firm.

Although Yoder predicted only slight rent growth because of the condo glut, M/PF said that apartment owners have been raising rents considerably.

Effective rents in the metro area spiked 7% between September 2004 and September 2005, according to M/PF. Rent has been growing in the city by 6% or more for four consecutive quarters, and the firm expects it to increase nearly 5% in 2006.

Submarkets with the most significant rent growth include Altamonte Springs/Longwood, Winter Springs/Casselberry, North/East Seminole County and Southwest Orange County.

Average rents in the past six months ranged from $630 to $1,035 for a two-bedroom apartment, said Yoder. Rents for all units averaged $807, or 85 cents per square foot, as of third quarter 2005, according to M/PF.

Developers priced out

The dwindling apartment supply could also be attributed to the shortage of available land. Many developers are forced to build in peripheral counties, like Marion and Lake counties. “They can’t work with expensive land,” said Yoder. “This is affecting all of the metro area. Any business moving in will have trouble finding [housing] for employees.”

In fact, the apartment market will empty its pipeline by the middle of 2006, according to M/PF. It had only 2,768 units under way in 2005, compared to 4,037 units in 2004. Occupancy will remain flat at 97.8% through most of 2006, the firm said.

Recent deals

NTS Realty Holdings, L.P., has sold the $43.2 million, 195-unit GolfBrook Apartments, and the $28.4 million, 162-unit Sabal Park Apartments – both in Orlando – to Investors Capital Mortgage Group, Inc., an unaffiliated Florida corporation.

NTS intends to use the proceeds from the sales of these Orlando luxury apartments to reinvest in one or more properties or for working capital purposes.

“GolfBrook and Sabal Park have been successful properties for us and we believe the sale prices reflect that,” said Brian Lavin, president and CEO of NTS’ managing general partner.

Nearby in Celebration, Fla., GDC Properties sold the 209-unit Mirasol to Lexin Capital, a New York-based private investment firm, for $84 million. It was one of GDC’s largest sales, and it has the highest per-unit price at $401,914 for an apartment project in central Florida, said Robert Miller, executive vice president at CB Richard Ellis, in The New York Times.

Lexin has been converting the apartments it had acquired in Celebration into condos.

In Maitland, Marcus & Millichap Real Estate Investment Brokerage Co., arranged the sale of the $18.3 million, 324-unit Jasmine at Maitland between the undisclosed buyer and seller. That comes out to $56,327 per unit and $71 per square foot.

“This unit has an excellent unit mix and is well located near entertainment and employment centers,” said Evan Kristol, vice president of investments and a senior director of Marcus & Millichap’s National Multi Housing Group.

Orlando multifamily market forecast




Net absorption

Effective rent

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 Source: Reis, Inc .