Condo deals look good on paper, but they are a management nightmare and the returns are rarely high enough to justify it.

You will 100% get sued by some owner.

You need to stay on the condo association board for several years, dealing with homeowners that are likely very demanding (rightfully so in some cases).

Your returns get totally screwed if you miss the PSF by $50 or the sales schedule by 6 months.

Construction costs have come down from the peak but still very high.

Demand is weak. No one wants to buy a 600-SF 1-bed condo in the CBD for $1,000 PSF.

The lower interest rates in 2020-2021 lifted the SFH and Townhouse prices, but didn't do much to the condo market. Now rates are higher, SFH and Townhomes are holding up steady but condo prices are dropping.

In my limited experience, it takes way more skills and experiences to be a successfully condo developer, compared to someone doing multi, office, or industrial. You don't need to be in the 5% percentile of developers in those asset classes to be successful, but you definitely need to be the top 5% condo developers in your market to execute great projects and achieve good returns.

 
Gulnezer

Condo deals look good on paper, but they are a management nightmare and the returns are rarely high enough to justify it.

You will 100% get sued by some owner.

You need to stay on the condo association board for several years, dealing with homeowners that are likely very demanding (rightfully so in some cases).

Your returns get totally screwed if you miss the PSF by $50 or the sales schedule by 6 months.

Construction costs have come down from the peak but still very high.

Demand is weak. No one wants to buy a 600-SF 1-bed condo in the CBD for $1,000 PSF.

The lower interest rates in 2020-2021 lifted the SFH and Townhouse prices, but didn't do much to the condo market. Now rates are higher, SFH and Townhomes are holding up steady but condo prices are dropping.

In my limited experience, it takes way more skills and experiences to be a successfully condo developer, compared to someone doing multi, office, or industrial. You don't need to be in the 5% percentile of developers in those asset classes to be successful, but you definitely need to be the top 5% condo developers in your market to execute great projects and achieve good returns.

What markets are you operating in? Demand is insane in SoCal for purchased product of all kinds, only the ultra luxury market in LA is taking a hit. $600-800K for a 750 sqft one bed in westla? $1M for a 1,000 sqft two bed in Santa Monica? There is SO much demand in the sub $1.5M space in LA and SoCal, that condos make more sense than rentals today… btw, can’t you insure the property from claims…? If it’s a small building, your risk is pretty minimal, doesn’t need to be 250+ units to be a condo project… btw, he’s saying conversation as well, so if you take a newly built product and convert, what are your risks….? You rent out the non sold units until you can sell it and the upgrades won’t be insane… 

maybe I’m crazy but condos make more sense financially today than rentals do… 

 

Yeah maybe SoCal along with NYC is unique that the condo price-to-rent ratio is high enough to build/convert condos vs apartments. I'm in a non-NYC East Coast market. Single family homes and townhouses are crushing condos.

I was thinking about office to condo conversions as opposed to rental to condo conversions, which obviously bares much less development risk, i.e., you don't need to punch through slabs, etc.

 
Gulnezer

Yeah maybe SoCal along with NYC is unique that the condo price-to-rent ratio is high enough to build/convert condos vs apartments. I'm in a non-NYC East Coast market. Single family homes and townhouses are crushing condos.

I was thinking about office to condo conversions as opposed to rental to condo conversions, which obviously bares much less development risk, i.e., you don't need to punch through slabs, etc.

Single fam and townhomes basically crush condos in every single market, besides maybe Miami…? 
 

very few office buildings are ever converted and if they convert to condo, imagine a marketing campaign that says: patio and balcony-less condos for sale! No one would ever live there except potentially NYC.

converting rental to condo today is starting to make much more sense, I’ve honestly been saying on this board for months now. Still not battle tested myself yet but there’s nothing stopping me from trying either lol

 
Most Helpful
Gulnezer

Condo deals look good on paper, but they are a management nightmare and the returns are rarely high enough to justify it.

You will 100% get sued by some owner.

You need to stay on the condo association board for several years, dealing with homeowners that are likely very demanding (rightfully so in some cases).

Your returns get totally screwed if you miss the PSF by $50 or the sales schedule by 6 months.

Construction costs have come down from the peak but still very high.

Demand is weak. No one wants to buy a 600-SF 1-bed condo in the CBD for $1,000 PSF.

The lower interest rates in 2020-2021 lifted the SFH and Townhouse prices, but didn't do much to the condo market. Now rates are higher, SFH and Townhomes are holding up steady but condo prices are dropping.

In my limited experience, it takes way more skills and experiences to be a successfully condo developer, compared to someone doing multi, office, or industrial. You don't need to be in the 5% percentile of developers in those asset classes to be successful, but you definitely need to be the top 5% condo developers in your market to execute great projects and achieve good returns.

Yeah I’m not seeing this in my market (also a non-NYC east coast market). If anything condos are even more attractive now. It was already very tough to make ground up apartment deals pencil before rate hikes and now with rates so high, it’s impossible. Brand new condos in certain sub markets of my city sell for $1000-$2000/SF and not just for 1BR, but for 2BR and 3BR also depending on the sub market. Hard cost/SF for union labor was $400/SF about a year ago but due to inflation probably $425/SF today although I imagine it should be going down as inflation starts coming down. Non-union labor should be $300-$350, but I’ve heard as high as $400 due to inflation and slightly more complex development, but once again should come down a bit as inflation comes down. The only time I would ever hold a multi family as a rental in my market is a value add/renovation as long as the cost of the building is reasonable and i only need to put in around $50-$100/SF to renovate. But I would never build a brand new multi family for rental - not before the rate hikes and certainly now

 

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