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The South Florida Business Journal is reporting Condo conversions revert to rentals.
Six communities with 1,571 units - three in Broward and three in Palm Beach County - have made the switch from condo conversion sales back to rentals.Mike Morgan of Morgan Florida sent me a couple of emails recently and had this to say:
Some are dubbing it "the great conversion reversion of 2006." It's a move to reposition rental communities, which were slated for condominium conversion sales, back to apartment rentals.
"It's an early-stage trend that will probably accelerate as the market slows even more," said Jack McCabe, CEO of McCabe Research & Development in Deerfield Beach.
I was out with a client yesterday and noticed a rental sign up on one of our largest condo conversions in Martin County. The converters have failed at selling the condos, so they have decided to revert back to apartments. A year ago they tried selling the condos starting at $249,000. Lately they have been offering them as low as $185,000 . . . and still no sales. By the way, there are more than 50 condo conversions in Orlando alone. The new catch phrase here is “condo reversions.” These guys are going to crumble, since rentals are off by as much as 50% with tens of thousands of flippers trying to rent homes they cannot sell. We no longer take any rentals from clients!There is no longer any doubt that Florida is ground zero of the bubble bust. The only debate is how quickly the mess spreads.
We have a lot of high rise ghost towns. It is only a matter of time before these developers and converters start defaulting on their loans and walking away. The banks are not going to be landlords. They will sell at auction for whatever they can get. Banks like Corus of Chicago have billion dollar exposures in Florida. Corus may have the largest exposure. Moreover, it is an exposure they cannot recover from once the developers start to fail.
By the way, if you’re looking for a company to call about the condo market, the largest publicly traded builder of condos in Florida, is WCI. They not only have the largest exposure, but they are primarily in the runaway markets like Naples. Naples was rated as the most overvalued market in the United States with an overvaluation value of 82%. The other segment of WCI is general real estate sales through Prudential WCI and mortgages. They are batting 0 for 3 right now.
I realize the media is taking a hit for reporting on the negative issues, but you haven’t even scraped the surface of what is going on here . . . statewide. The snowball effect will be horrible. More than 30% of the jobs created in Florida last year were in construction. We are now in a strong negative mode for construction jobs. As builders slow down and shut down, these guys are out of work. They are trying to relocate to New Orleans, but there is no place for them to live there. Talk about a Catch 22. I attended a luncheon yesterday where the president of the US Chamber of Commerce spoke. She owns a construction company in New Orleans. It was an eye opener and you could have heard a pin drop in a pile of hay as she spoke for 30 minutes.
Mike Shedlock / Mish