Condo Deconversion

I have seen many discussions out there of condo conversion, but I am wondering if anyone knows anything about turning a condo into multifamily units. The condo I had in mind is an eye sore in class A location and it is pretty clear that the HOA is broken. There is always the slow option of buying each one as it hits the market, but wanted to hear some of your experiences or thoughts on how I should approach this.

 
Best Response

I don't have a lot of experience in this but my general sense, just from listening to others who have attempted this, is that it's relatively difficult. The problem is that you will probably run into a situation where one or more savvy owners in the complex realize what you are doing, know you need to buy their unit, and then they will hold out for a much higher price than you are willing to pay for each unit. You'll also run into a timing issue because some people won't want to sell at all or in a timely manner, so if you don't execute well you could get stuck holding the bag on a large number of units without a real way to monetize effectively in a reasonable time frame. Coupled with the fact that you'd have to effectively 'undo' the condo mapping from a tax/parcel perspective, dissolve the HOA and any easements, CC&Rs, etc. You can see very quickly where the increased $ you'd have to outlay up front would probably evaporate any increased yield you would get trying to do a value add apt conversion. Not saying it's impossible but you have to be really careful I would think.

"Who am I? I'm the guy that does his job. You must be the other guy."
 
MonkeyWrench:
I don't have a lot of experience in this but my general sense, just from listening to others who have attempted this, is that it's relatively difficult. The problem is that you will probably run into a situation where one or more savvy owners in the complex realize what you are doing, know you need to buy their unit, and then they will hold out for a much higher price than you are willing to pay for each unit. You'll also run into a timing issue because some people won't want to sell at all or in a timely manner, so if you don't execute well you could get stuck holding the bag on a large number of units without a real way to monetize effectively in a reasonable time frame. Coupled with the fact that you'd have to effectively 'undo' the condo mapping from a tax/parcel perspective, dissolve the HOA and any easements, CC&Rs, etc. You can see very quickly where the increased $ you'd have to outlay up front would probably evaporate any increased yield you would get trying to do a value add apt conversion. Not saying it's impossible but you have to be really careful I would think.

A fantastic example of this is Hilton Head Island. So many of the formerly high-end condos need renovations and/or a complete tear down, but good luck getting that accomplished in a condo building.

Commercial Real Estate Developer
 

Met a guy who does this on a massive level. He starts by buying one condo, then slowly buying up others until he controls the HOA. Then he makes it hell on the other condo owners until they concede and finally sell to him. He's been really successful with it. It takes time and you have to be willing to let you money sit for a while. Best part is that you can buy the condos, rent them out and generate a CF from it while you're waiting on the other condos to concede.

 
CRE SC:
Met a guy who does this on a massive level. He starts by buying one condo, then slowly buying up others until he controls the HOA. Then he makes it hell on the other condo owners until they concede and finally sell to him. He's been really successful with it. It takes time and you have to be willing to let you money sit for a while. Best part is that you can buy the condos, rent them out and generate a CF from it while you're waiting on the other condos to concede.

which also depends on the HOA - some have clauses that restrict the amount of rental units in the building

 
CRE SC:
Met a guy who does this on a massive level. He starts by buying one condo, then slowly buying up others until he controls the HOA. Then he makes it hell on the other condo owners until they concede and finally sell to him. He's been really successful with it. It takes time and you have to be willing to let you money sit for a while. Best part is that you can buy the condos, rent them out and generate a CF from it while you're waiting on the other condos to concede.

What he's doing is highly unethical, even if it's legal. Obtaining a controlling share in the HOA and then making people's lives miserable until they sell is straight-up wrong. I'd rather never be rich than live my life like he does--as a sociopath.

Array
 

Hi enti98, just trying to help:

  • Condo Experience Hey- currently developing a condo project model. Does anyone have experience building one? Main ... insight. condo finance Real Estate ...
  • Modeling Question- Combining Condo Sales & Rental Space I'm trying to model a mixed-use complex that has ground floor retail with a grocery anchor ... and second and third floor condos. I have construction debt currently at 75% LTC, but whenever I go to ... the NOI is so low in comparison to the cost. I have little to no experience with condos- so what is ...
  • Condos Finance Modelling Book Hello: Does anybody knows any real estate finance book on condos (I assume the difference between ... multifamily is that condos are sold), usually here in Mexico, we don't operate under multifamily ... assumptions. So trying to learn a little bit more on the subject. Any input is appreciated. condos ...
  • Condo Conversion Hey Guys, Does anybody have any resources or case studies on condo conversions? I'm trying to ... appreciated! multi-family MF condo condominium conversion ...
  • Condo Deconversion I have seen many discussions out there of condo conversion, but I am wondering if anyone knows ... anything about turning a condo into multifamily units. The condo I had in mind is an eye sore in class ... approach this. condos ...
  • Ask mbaMission about Business School Admissions href="https://www.wallstreetoasis.com/financial-modeling-training">Financial Modeling Courses</a></li><li><a ...
  • Best Conversations You've Had With Bankers? What are some of the best informal conversations you've had with bankers at networking ... Sox for over an hour. What stories do you guys have? Any conversation topics or mutual interests that ... have led to great conversations and meaningful connections? to Saturday, October 28, 2017- 4:55pm ...
  • More suggestions...

If we're lucky, maybe I can guilt some users to help you out: Kim-Johnson Porzingod1 @benjamin.heflin"

Hope that helps.

I'm an AI bot trained on the most helpful WSO content across 17+ years.
 

Hi C.R.E. Shervin, check out these links:

  • When did you guys in NYC purchase your first condo/house? neighborhood and number of rooms, payment (all cash, anyone?) stuff for most of you. Thanks! buy condo ...
  • WSJ: New Era for Skyscrapers, High Rise Condos In NYC and elsewhere, high-end and high-rent high-rise condos are without question an emerging ... ultra-luxury condo tower on West 57th Street, which will be about 100 feet taller than the Empire State ... make loans for condo projects. A spokesman for JDS declined to comment on the financing, but said the ...
  • Renting condos downtown NYC in the summer to find cheaper condos in NYC? IBanking ... So, I am starting my summer internships soon. I am looking for an average-priced condo to rent in ...
  • Condo Conversion Hey Guys, Does anybody have any resources or case studies on condo conversions? I'm trying to ... appreciated! multi-family MF condo condominium conversion ...
  • Condo Deconversion I have seen many discussions out there of condo conversion, but I am wondering if anyone knows ... anything about turning a condo into multifamily units. The condo I had in mind is an eye sore in class ... approach this. condos ...
  • Buying a Condo/Appt in NYC I was wondering how soon people look to buy a place in NYC once they start. It seems like people ...
  • Buying a condo as a 1st year analyst some opinions on whether or not to buy a condo as a 1st year I-banking analyst. Just a little bit of ... utlities I do not live in NYC and this is unit would literally be literally as close to my office as ...
  • More suggestions...

No promises, but thought I'd mention a few relevant users that work in the industry: @DC_Transplant" Stoo drakea07

Hope that helps.

I'm an AI bot trained on the most helpful WSO content across 17+ years.
 

This question actually speaks to the larger question about condo regime winddowns. The condo is a relatively new animal in the United States (about 60 years as a widely-used model), and only now are buildings starting to really become obsolete in vast quantities. The reality is, there are not many good ways to wind down a condo regime--you have to acquire 100% of units one way or the other. There is a reason that condos generally don't appreciate at the same rate as non-condo properties--as the building depreciates, maintenance and capital expenditure costs start to rise beyond the rate of appreciation, causing condo fees to rise beyond the rate of underlying land appreciation. So your condo fees rise each year to pay for maintenance/capex but your underlying unit value may stagnate.

My friend grew up in a vintage 1970's condo building; his family pays something like $1,500/month condo fee for a unit that would sell for only about $250,000--in a Class A- neighborhood. In my mind it would be in the HOA's best interest to input a provision that allows for a developer to buy out all of the units under some form of pre-determined calculation (that would end up paying out owners well above market value and making people whole who may have negative equity). I'm thinking about proposing this to my own HOA, although I fear people may fail to understand why my proposal benefits them.

Array
 

General Question on this process

  1. Is there a percentage of a HOA that needs to vote for a bulk-sale in order to proceed with the sale of a condo building? Does it depend on the particular HOA?
  2. If the HOA approves, all condo owners are forced to accept the price that the HOA agrees to?
  3. If the sale is successful, can the buyer immediately change the use to multifamily or will it need to receive new zoning approvals?
 
  1. Not sure if this is what you're asking but I'm pretty confident (95%+) that you can't sell 'the building' in it's entirety unless you own/control every unit in the condo. You can use controlling interest in the HOA to vote to dissolve the HOA, but if there's other ownership they can retain the parcel/part of the condo map that they own unless you can buy them out. So you could dissolve the HOA and then that would allow you to sell whatever interest you own, but unless you own 100% of the units in the building it's going to be a hard exit strategy.

  2. I don't think you can force the condo owners to accept any price - even if you control the HOA they still own their unit.

  3. I don't think zoning change applies here since it's already zoned for multifamily use. Whether it's apartment or condo should be irrelevant unless I'm missing something.

"Who am I? I'm the guy that does his job. You must be the other guy."
 

Went through this recently on a deal (it's a garden property). Disclaimer, I am not a lawyer (thank god).

  1. You can sell your interest in 'the building', but you can't sell something you don't own obviously. You can sell your bulk interest. Also, a lot of this depends on your control over the HOA (i.e. do you own 25%, 50%, 90%, etc.) There are different procedures for this in all HOAs and it also depends on what state you are in. Talk to local counsel here; preferably the guy who wrote the HOA.

  2. Depending on your HOA docs and state, there is a mechanism in which you can trigger a forced sale of the condos. The process of determining the value of those condos that can be tricky (i.e. appraisal for each individual units as a condo and another appraisal of the property as if it were an apartment building) and may not yield a price that you're excited about. However, these condos are often hard for a new buyer to finance and someone likely has to pay all cash for the condo (which only the owner of the other condos can / wants to do). There are some murky legal areas here about which entity can buy the new condos (i.e. does it need to be a new entity?) which can trigger some tax reassessment type dynamics. Also, it is a PR nightmare for some real estate company to force granny to sell her condo so consider that. Easiest time to do this is at or before the sale of the asset to the next group. Can be very accretive in a bunch of ways (i.e. why we're going through the brain damage here).

  3. Agree with everyone else here you shouldn't have any zoning issues.

 

Et et reiciendis voluptas distinctio. Sit mollitia labore qui.

Illo voluptatem rem magni dolores suscipit voluptatem quia. Iure non vel qui reiciendis amet omnis. Itaque est et ut assumenda eum voluptatum consequatur. Amet corporis assumenda omnis alias quia. Sapiente rerum autem nulla.

Sunt rem enim molestiae. Voluptatem et cumque modi error enim a molestias. Velit facere molestias eos qui at laborum. Quia nulla saepe esse id a aut. Exercitationem reprehenderit pariatur et quis.

Mollitia pariatur provident sapiente provident. Est sed in commodi placeat et. Est a sint laudantium deleniti quia quasi aut.

Array

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (85) $262
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (65) $168
  • 1st Year Analyst (198) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”