A condo deconversion is a real estate transaction in which a savvy investor acquires an entire condo building through a bulk sale to turn into rentals. This investment trend has been seen in Florida and California for a number of years and is picking up steam in other coastal metros and even in the Midwest. In Chicago, where my firm consults, markets and leases condo deconversion transactions, we have seen an increase in international investor groups exploring these opportunities. Condo deconversion is a great alternative to ground-up new construction or repositioning an already existing multifamily asset.
The majority of condo deconversions are in prime locations with great access to neighborhoods, nightlife, dining and cultural attractions.
The biggest hurdle in converting a current condo building to an apartment building is securing enough votes from a condo association to approve the conversion. These are complicated and challenging deals, often taking years to close. However, the payoff can be significant with a sound business plan and team to help execute.
Here are five key elements to consider when planning a condo deconversion leasing strategy:
Often, a large-scale condo has a storied history, possibly involving a notable architect, recognizable exterior or catchy name. When rebranding and repositioning the property, it’s important to find a balance between the old branding and new identity. For example, at one well-known property in the growing South Loop market of Chicago, we kept the original building’s name but modernized the logo. The property’s branding and messaging were far ahead of its time, and we wanted to honor the original vision. This kind of acknowledgment is well received, especially if your building’s current residents take great pride in their home and never planned to be tenants. Having them as allies through the process is helpful. By not changing the name or identity too dramatically, you will have a better chance of helping current residents feel like they are part of the process.
Once you have rebranded, it’s important to build excitement with the right audience. This includes the current residents who may become your long-term tenants as well as potential residents who are often looking for an alternative to a cookie-cutter new apartment building. It’s important to find the unique features of the property: larger square footage, unique duplex layouts, custom finishes. Renters do still gravitate toward renting a condo over an apartment because they want something unique; however, when renting from an individual landlord, the level of service is an unknown. A condo deconversion provides renters with the best of both worlds. They can enjoy the size and location of a deconverted condo building with a professional multifamily management company. Capturing this audience early in the process with sneak peek renderings or a “VIP resident event” will get the buzz going slightly ahead of leasing.
The condo deconversion process can have controversial moments, and the media has a tendency to focus on some of those elements. When people are considering living in a property, it’s important any negative information people see online is handled in a consistent way from your leasing team. This includes educating the leasing team on what it means to be leasing a condo deconversion, why it’s happening and the added benefits of renting there. The leasing team needs to seamlessly talk about the past, present and future of the building.
Update The Property’s Online Footprint
Many condo deconversions are in buildings where there is already a significant renter population. It’s one of the factors investors look for in targeting a condo building for deconversion. Because of this, there is likely an online footprint identifying this property as a condo building. Moreover, there are likely reviews online specific to a current condo association, management company or even individual landlords. When you are converting a condo building to apartments, it is crucial that you change the online footprint from “condos” or “condominiums” to include the word “apartments.” You also need to consistently mention that the building is “under new management” if there have been negative reviews. Updating your Google My Business page, securing media placements and encouraging reviews from advocates of the deconversion will help position the building for long-term success.
Prepare The Leasing Path
One of the main draws for investors in purchasing a condo deconversion is the ability to renovate common space, amenities and units. However, it’s important to strategically plan for renovations, understanding how they will affect not only current owners turned renters, but also potential renters. Similar to new construction leasing, setting up a clean and construction-free path for leasing is crucial. This includes apartment models of varying unit types, finished lobby and hallways where possible and, ideally, the completion of any new and updated amenity spaces. If not possible, high-resolution renderings help paint the picture. Even using VR for those amenity spaces can be very impactful. With a condo deconversion, developers often have the opportunity to plan the closing and construction timeline slightly better than new construction. Developers also have the added benefit of cash flow from current renters on day one. Take the time to plan the leasing path the right way and you will see increases in rent over the long term.
When planning a condo deconversion leasing strategy, make sure to consider these key elements months before the first unit is ready to be leased. This trend is picking up steam in many markets throughout the country, and the delicate balance of repositioning the building must be at the forefront of every developer’s mind.