Lowly apartments, transformed into condominiums across South Florida during housing’s heyday, are now turning back into rentals. Unit owners are split on whether the move is a blessing or a bust.
In many cases, these complexes went condo for no other reason than to satisfy the incredible demand for homes in the middle part of the past decade.
The buildings — in less desirable, suburban locations — have been hit hard by foreclosures and price declines, while developers have struggled to find new buyers.
A change in Florida law made it easier for majority owners of these troubled complexes to dissolve the condo associations, giving the properties a better financial future as rentals.
Proponents insist it’s a perfect opportunity for “underwater” borrowers to shed burdensome mortgages, while others describe it as an unfair power play by developers to force people from their homes.
Unit owners can hand over their condos for a share of the new apartment complex or they can accept current market value for their units.
Either way, owners who owe more than their condos are worth have to settle up with their lenders — most likely by getting the banks to forgive the difference, as in a short sale.
“Most people see this as a way out because it should not have been a condo in the first place,” said Jennifer Drake, a lawyer for Becker & Poliakoff in Fort Lauderdale, a firm that represents condominium associations across Florida.
In the past three years, 36 condos have reverted back to apartments in Palm Beach and Broward counties, according to CondoVultures, a consulting firm. Erie at Lake Worth Condominium and El Jardin of Pompano are among the failed projects to turn back into apartments. Many other buildings are operating as de facto rentals.
Those who bought at the height of the housing boom won’t break even in a sale for 10 years or more, said Jonathan Kingsley, a unit owner at a Hollywood condo that’s operating unofficially as a rental.
“You might as well get out now at whatever loss you can,” he said.
But some don’t see the move to apartments as a good thing.
“I think it’s greatly unfair if you bought with long-term plans because you’re being chased out of your investment without any say, basically,” said Julio Robaina, a former state lawmaker who drafted legislation for condo dwellers.
Negotiating with lenders is a hassle for borrowers under any circumstances, and their credit scores likely will suffer. Besides, some people are content with their underwater mortgages, said Gary Singer, a real estate attorney in Sunrise.
Condo owners can make deals to stay on as renters, said Grant Stern, president of Morningside Mortgage Corp., a Miami-Dade County company that handles condo terminations for developers. Still, those who choose to move could face higher monthly costs elsewhere.
“I don’t want to live in a rental community; that’s why I bought a condo,” said William Bush, 77, a longtime board president in Weston. “I think people would be dead-set against it.”
A condo-to-apartment conversion can be stopped if 10 percent of a building’s unit owners object, according to state law.
In Orlando, residents in one complex are fighting the switch. In many buildings across the state, condos are owned by investors who don’t live there. The few existing unit owners who remain usually don’t object to the change once they understand the process, Stern said.
Sunset Lake Villas in Margate is typical of the trend back to apartments.
The nondescript complex consisting of five single-story buildings was converted to condos in 2007. Prices escalated to near $200,000, even though Sunset Lake lacked upscale amenities and is about seven miles from the ocean.
The developer sold 11 units, all of which eventually fell into foreclosure, Stern said.
Squatters soon started living in the vacant condos, and the complex fell into disrepair. It changed hands, and the new owner began renovations and hired Stern to return it to an apartment complex.
It is fully leased, with tenants paying about $1,000 a month for the two-bedroom units. The transaction, which started last year, should be complete this week, he said.
“This is the time to cut the best deal you can,” Stern said of unit owners. “Once all these distressed properties are cleared, banks aren’t going to want to negotiate these things.”