North Beach, Fla.—In October 2008, managers at Marina del Mar cut their average apartment rents by more than $100 a month.

That's a steep discount. However, it doesn't include the month of free rent Marina del Mar's managers also offer potential residents who sign a one-year lease or the discounted move-in costs.

“There's a lot of competition,” explains Donna Ameller, president of JMG Realty, property manager of Marina del Mar. “We've got to fight to keep the residents.”

Like many local apartment communities, Marina del Mar is surrounded by unsold condos. Thousands have been put out to rent by investors in Miami-Dade County, often offering luxurious amenities at steep discounts.

However, considering the stiff competition from this “shadow market” of rented condominiums, it's surprising how well the conventional apartment business is doing, according to local experts.

Condos drag on rental market

There are more than 23,000 condos listed for sale in Miami-Dade County on the local multiple listing service. Another 6,000 are expected to come on the market this year.

In addition, about 11,500 foreclosed homes, including many condos, are owned by banks in Miami-Dade County, while another 4,900 are scheduled to be auctioned off , according to

Prices for these distressed real estate assets have collapsed.

“Bank-owned properties, foreclosures, and stalled condo conversion projects are available for as low as $0.35 to $0.40 on the dollar to what they previously sold for or what might be owed on them,” says Jack McCabe, president of McCabe Research and Consulting, LLC, based in Deerfield Beach, Fla.

A substantial number of unsold and foreclosed condominiums are already competing against existing rental apartments for residents, either as steeply discounted for-sale housing or as converted rental apartments, according to Greg Brooks, executive director of the South East Florida Apartment Association (SEFAA).

The owners of at least eight fractured condominium communities totaling more than 1,000 unsold condos have already officially transformed their condos into rental apartments by joining the local apartment association.

SEFAA is also trying to educate the general public about some of the risks that come with renting unsold “shadow market” condos.

“The risks could be anything, from safety and security to mold, mildew, and bedbugs,” warns Brooks.

Miami still strong

However, despite the competition, the apartment market in Miami still has some fundamental strengths.

Overall rents are still rising in Miami-Dade County. Average asking rents for apartments are expected to grow this year, albeit very slightly, to reach $1,060 a month, an increase of 0.4 percent, according to Reis, Inc., a market research firm based in New York City.

The firm predicts that asking rents will continue to grow by between 1 percent and 3 percent a year through 2012.

Also, the vacancy rate for apartments here remains relatively low. The percentage of vacant apartments in Miami-Dade County was expected to reach 5.2 percent by the end of 2008, up from 4 percent the year before.

That's still less than other East Coast cities—including Baltimore and Boston—that have been given a clean bill of health by their own local apartment analysts.

Vacancies in Miami eventually will hit 5.6 percent by 2010 before leveling off , according to Reis.

Vacancies are rising the most in neighborhoods with a lot of condominiums, like North Beach.

“I'm being challenged the most at my beach property,” says JMG's Ameller. At Marina del Mar, 7.5 percent of the 336 apartments are vacant.

In contrast, JMG's property in Kendall, Fla., where few if any condos were built, has a vacancy rate of just 4 percent.

Other than the shadow market, apartment managers can expect little competition from new construction. Builders will only complete 507 conventional new apartments this year. That's less than 0.5 percent of the total apartment inventory. However, the new construction is still a big increase compared to 2007, when no new conventional apartments opened, according to Reis.

The pace of new apartment construction has been slow since 2005 in part because of the sky-high cost of land and construction. The experts at Reis don't expect the number of new apartments opening to top 1,000 per year until 2010.

In a sense, the shadow market of condominiums is also balanced by the many rental apartments lost over the last five years to condominium conversions.

Reis counts 111,000 rental apartments in Miami-Dade County as of 2008. That's nearly 25,000 fewer apartments than the market had in 2003 before the condo conversion boom began.

The people that lived in those 25,000 apartments probably still live in the area, according to real estate experts. Over the same period, the population of Miami-Dade County actually grew from 2.3 million to 2.4 million, according to Census data.

Total employment in the area is expected to drop 2.5 percent to reach 1.036 million by the end of 2008 and to continue to drop in 2009 and 2010, according to Moody's

However, Florida's economy will eventually support strong population growth again, experts say. The U.S. Census projects that Florida will add more than 12 million people between 2000 and 2030.