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July 09, 2005

Los Angeles condo conversions, be careful out there

A couple of weeks ago I stumbled onto an open house for an apartment building to condo conversion project in West Los Angeles. Here are the datapoints that I came away with: One bedroom/one bath units with approximately 950 sq. ft are going for the mid $500,000s. Two bedroom/two bath units with 1,400 square feet are going for low $700,000s. So we are talking $500+ per square foot, and don't forget a couple hundred a month on HOA fees. This was an early 1970s building. Certainly not a special property, no great views, no nice common areas to speak of. They were doing their best to add nice wood flooring and stainless steel appliances, but still, $500+ a square foot? Generic neighborhood, south of Santa Monica Blvd and east of Bundy. You could expect to find a decent one bedroom apartment in the area for $1,100-1,200/month. The broker commented that the property was originally built to be condos in the the 1970s, but the market went south at the time and the property ended up being apartments until now. Interesting way to lead a sales pitch I thought, as what exactly prevents the market from going south on condos again?

Prospective buyers should think twice before jumping into a deal like this. The fact that real estate is being fueled by creative financing (interest-only loans, etc) has been documented extensively in the media, so I won't belabor this point (just do a google search). What is not discussed enough in my opinion is the nature of condos, and how they could be particularly subject to a price correction. The argument given by the real estate bulls is that the supply of real estate is limited, and in SoCal especially we are built-out and "they aren't making any more of it" (meaning land). While this could be true for single family homes, it is not true for condos. The potential supply of new condos that could come on the market is limitless. Take a drive around town. Whenever you see an older single family home or aging duplex with just a little extra land, you are looking at a potential tear-town project with 10+ new condo units coming on the market. So if you are buying one of these new condos or condo conversions, make sure that you want to live there for awhile and that the property is special in some respect. That is the best way to preserve equity in a condo market that is historically fickle. And if you decide to rent instead of buy, take a look at our Los Angeles Apartments page for rental ideas.

Los Angeles on the Net - www.ultimateLA.com

Posted by ultimatela at July 9, 2005 09:07 PM

Comments

The condo conversions sounds great, I would love to rent an apartment out there.

Posted by: Apartment Locator Houston at October 27, 2005 08:16 PM

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