SCOTTSDALE, AZ - A recent sale of a Scottsdale Ranch apartment complex is a screaming reminder of just how far over the edge the condo-conversion business went a few years ago. The 350-unit La Privada apartments sold for $32 million, down 60 percent from a November 2005 deal for $79.6 million or $227,428 per apartment. It was one of the highest prices paid per unit for a Valley apartment complex at the peak of the market.
Robert Sheridan and Partners of Chicago bought La Privada with plans to convert the resort-style complex to condominiums with prices starting at about $200,000. But its play was ill timed. "We recognized early on that the market had completely changed direction and collapsed," company President Robert Sheridan said. He did have success with condo conversion projects in Phoenix and Chandler.
La Privada, built in 1985 at 10255 E. Via Linda, was just one of dozens of apartment complexes that investors paid top dollar for in a rush to convert them to condos about four years ago. Back then, eager buyers were qualifying for loans if they could walk and chew gum, not necessarily at the same time.
"It just stopped one weekend," Tyler Anderson of CB Richard Ellis said of the condo-conversion craze. The real estate brokerage with offices in Phoenix estimated that condo converters bought 28,000 apartment units over a 3-year period in the mid-2000s. About half were sold as condos and close to 10,000 reverted to apartments.
That leaves several thousand units in complexes where there is mix of apartments and upgraded condos, Anderson said. "There really are not many communities with a lot of units left to sell," he said.
La Privada was well-positioned to be converted to condos because its 39 townhouse-style buildings are spread out on 36 acres, Anderson said. But La Privada failed after Robert Sheridan and Partners installed new roofs, renovated the amenities and upgraded 60 units to condo standards, Anderson said.
The lender took the property over, Anderson said, and it was acquired by the 10255 East Via Linda LLC, affiliated with New York-based iStar Financial Inc. "It's a great buy," he said of La Privada. Anderson and Sean Cunningham of CR Richard Ellis represented the La Privada buyer. It is San Diego-based ConAm Group, which owns apartments around the country.
About 93 percent of the La Privada apartments were occupied when the limited liability company sold it. ConAm got financing for the deal through Freddie Mac, which is a government-sponsored enterprise. Anderson of CB Richard Ellis said the La Privada deal could signal an increase in sales of multifamily properties.
Those commercial properties had been on fire from early 2005 to the end of 2007. More than 600 of them, each with more than 100 apartments, were sold. But since July 2008, only four properties with more than 100 units had changed hands, Anderson said.
Other than La Privada, the only other large complex to sell this year was the 240-unit San Montego apartments in East Mesa, which went for $20 million or $83,333 per unit. There is financing available, even if the underwriting is more stringent than it was in the past, Anderson said.
Source: AZcentral.com