JACKSONVILLE, FL - When a developer converts a building into condominiums, it's taken as a sign of prosperity and success. And when the wheels fall off the real estate market and condominiums languish back into apartments, it's the opposite. Those condominiums are "fractured." In Jacksonville, more condominium owners are finding that when sales run out of steam in new condominium complexes, developers rent out adjacent units as apartments to pay the bills.
"If you bought a condominium in a development that's yet to be completed, you are in a bad position. It's just the times," said Ray Rodriguez, owner of the Real Estate Strategy Center of North Florida. "Nobody's going to buy a condominium when half the units are rentals. The resale values have been shot."
Rodriguez said there's a glut of 7,000 unsold boom-time condominiums in Northeast Florida. And as values sag and credit tightens — mortgage giant Fannie Mae recently stiffened loan restrictions for Florida condominiums, for example — sales have gone stagnant, he said.
The developer of Ocean's Edge condominiums in Jacksonville Beach sold the recently converted units through 2007 when they began to also lease them, but it wasn't enough to stave off foreclosure. Its 107 unsold and rental units go on the auction block Thursday.
"We hope whoever buys it will continue to do what the first management company did at first, continue to sell, not rent them all," Ocean's Edge condominium owner Regina Tapper said. "Who will want to buy here if the rest are rentals?"
Lantern Square Condominiums in Arlington began to lease units around the same time as Ocean's Edge. With fewer than a third sold, the project's developer told owners more money was needed to pay for debt service and remaining units would be rented.
"At a point last year, we were on the verge of losing it to the bank," Miami developer Vivian Dimond said. "What can I do now that the market crashed? Go back to basics and start renting. I am betting the farm on Jacksonville and I'm proud of it. I hope I am correct that the market in Jacksonville will come back before it will in South Florida."
A few unhappy Lantern Square owners say they're considering foreclosure just to get out. "The key point is that none of us are in a position that we can't afford our mortgages," said Scott Mahoney, who stopped paying his mortgage in December and homeowner's association fees in October. Mahoney and roommate Fred Wright moved to Riverside on Monday and potential foreclosure on their Lantern Square property is still pending.
Renting unsold units brings apartment tenants to unit owners who aren't always happy to see them come, said Ocean's Edge condominium association manager Kathryn Harrigan. "The owners want the renters out," she said. "They say, 'I pay assessments and you don't.'"
Lamar Fisher, President and CEO of Pompano Beach-based Fisher Auction Co. — the company conducting the Ocean's Edge auction Thursday — said a "bulk sale" of 107 condominium units isn't unusual these days.
"Our firm has been in business for 38 years, but this trend for fractured condo sales has just been in the last six to eight months. You're going to see this more and more and more," he said.
LeCesse Development Corp., bought the Ocean's Edge as apartments for $23 million and borrowed $36 million from Ohio-based Keybank National Association to convert them to high-end condominiums.
Harrigan said financially, the conversion started well but stalled. "They sold these pre-construction. Every single one was sold. Then the market turned and they [buyers] left their binders on the table," she said.
Lori Meadows, property manager of The Strand apartments on the Southbank, said the nearby Peninsula, which was built as condominiums, was fully sold and was complete before the market began to erode. But the 295-unit Strand, built as apartments, couldn't be converted to condominiums due to the downturn, she said.
Meadows formerly worked at Heritage Deerwood, another Jacksonville condominium development where sales stalled, fracturing it into rentals. "The developer had no choice," she said. "The market changed. As much as we tried, it just wasn't happening."
Source: Jacksonville.com