If you own Class A or B apartments in South Florida, Southern California, or Washington, D.C., you've had some very good years. While multifamily properties have increased in value across the country, it's nothing quite like what's happening in these cities. Property values are soaring. Apartments in Southern California have seen their valuations increase 98 percent since 1999, with the biggest jump coming in 2002 when prices jumped 22 percent, according to Linwood Thompson, managing director for the National Multi Housing Group at Marcus & Millichap, a brokerage firm in Atlanta.

One primary reason for this phenomenon: strong condo-conversion markets. "The condo product is the stuff with the most demand and most money chasing it," says Chris Beda, managing partner and chief investment officer for Carmel Partners, an owner, developer, and manager of real estate in Denver. "There is a tremendous trend to do condo conversion. That's made it much more competitive because there are still people out there trying to buy these properties as apartments" in addition to condo converters buying them.

With condo converters, private investors, institutions, and REITs chasing deals, the bidding for multifamily properties has become hot and heavy around the country. But there are a few spots that are cooler, including some Midwestern markets as well as those places with low barriers to entry and shaky employment situations. Even in these cities, though, demand is at an all-time high, according to industry watchers. The acquisitiveness even crosses property lines, with buyers pursuing not only Class A and B properties, but Class C as well.

Heat Wave Five years ago, an apartment complex wasn't so tough to buy. Then, landing properties was easier, says Al Neely, executive vice president for Archstone-Smith, who remembers how he could always compete with other bidders if he wanted to buy an apartment building in Washington, D.C. Today things are different for Smith and the Englewood, Colo.-based REIT. If a property can be converted to condos, Archstone-Smith's bid is not much more than an afterthought.

"Converters can pay more and sell a product for a lot more," Neely says. "We have to underwrite it as a rental and operate it as a rental building. If a building is ripe for condo conversion and in a condo market, we really can't compete today. We're just priced out of the market."

Since Neely operates in Washington, Southern California, and South Florida, he's seen a lot of these deals cross his desk. The reason condo converters flock to these markets? Supply and demand. Lots of people want to become homeowners but can't afford the steep single-family home prices in these markets. Meanwhile, local governments make it difficult to develop new multifamily properties, which limits the availability of condos.

But each of these areas possesses other characteristics that make them popular with multifamily property purchasers. In Southern California and South Florida, water and immigration are the big attractions. In South Florida, prices have climbed 35 percent in the past three years, to a median price per unit of $70,000, according to Thompson.

Multifamily buyers are feeling this pricing pressure. "The competition in Florida is fierce," says John Smith, senior vice president of acquisitions for Home Properties, a REIT based in Rochester, N.Y. "We are in southeastern Florida because of immigration from Latin America and migration from the Northeast. There are also barriers to entry, with ocean to the east and the Everglades to the west."