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Condo wave a ripple locally: Shelved conversions show area not following in national footsteps

August 15, 2005

Condominiums are hot. Apartments are not.

In many cities, that current market truism among would-be renters has led to a wave of conversions of apartment complexes to condos. But not in Indianapolis.

To date, only a handful of apartment complexes have successfully made the leap from rental to for-sale, notably Lion's Gate at 86th and Meridian and Ladywood Estates near Emerson Avenue and 56th Street.

Much of the reason has to do with the affordability of single-family housing in the market, multifamily experts said.

Some apartment complex owners have started to market their units as conversions, but shelved plans because of slow sales or other reasons, said George Tikijian, principal of locally based Tikijian Associates. He said he knows of several complexes that have retreated to rental-only in the local market.

One of those is Grande Reserve at Geist, a 146-unit complex at 79th Street and Sunnyside Road. Last summer the complex's owner, Chicago-based Marquette Companies, opened four model homes as condos priced from $92,990 to $148,990. A few months later, the company pulled back on its plans and now advertises Grande Reserve as only an apartment community.

Despite the conversion trend elsewhere, in Indianapolis an apartment complex has to be fairly special to work as condos, said Stephen R. Lamotte Jr., a multifamily broker at the local office of CB Richard Ellis.

"It works for unique properties or unique locations," Lamotte said.

Otherwise, pulling off a condo conversion in Indianapolis can be tricky. With single-family homes abundant and affordable, and new condo construction picking up downtown and in the suburbs, there's little incentive for would-be buyers, he said.

Condo interest is high nationally because low mortgage rates are making apartment renters more interested in buying their own dwellings.

The conversion trend is most prevalent in cities where the high prices of singlefamily homes keep many people from buying, such as Southern California, south Florida and parts of the Northeast, according to California-based brokerage Marcus & Millichap. The brokerage estimates that more than $7 billion worth of apartment complex sales last year were destined for conversion.

Even in smaller markets, lack of availability of suitable land has resulted in more conversions than in the local market, Lamotte said. He cited Louisville, with its rolling topography and geographic boundaries, as an example of a market where it's sometimes cheaper to convert than to build new.

Despite inexpensive housing here, some converters are testing the market.

Lamotte earlier this year brokered a deal in which Chicago-based SLS Management Inc. bought the 152-unit Northampton Village apartment complex at 7700 Harcourt Road with plans to turn the community into condos.

Since then, the complex has been renamed Private Reserve Luxury Townhomes and work converting some of the units into condos has begun.

In that case, Lamotte said, conversion was a viable option because it is a unique property. As built, the units are as large as 2,000 square feet, bigger than most apartments and many condos.

Next up may be a small complex near the Monon Trail in Carmel, near the construction and activity of Carmel's downtown. The 48-unit Park Lane community is for sale, and Lamotte said he expects the complex to draw strong interest from converters. Sellers generally welcome converters, who can afford to pay more for a complex because of the potential for a quick turnaround.

Locally, a few companies, such as Hearthview Residential LLC, specialize in conversions, but they are more likely to be conversions of downtown warehouses or office buildings than apartments.

One out-of-state investor who recently nabbed a prize apartment complex in west Carmel said he likes what he sees in Indianapolis.

"The condo market here is, I believe, in its nascency," said Ben Friedman, president of New York-based Abacus Capital Group.

Abacus recently purchased the 186-unit Crescent Apartments in the Village of WestClay and renamed it Wentworth at WestClay. The company intends to upgrade the complex's interior and exterior common space and begin marketing the one-, two- and three-bedroom units as condos priced from just under $100,000 to more than $200,000.

In a neighborhood where the average single-family home price is about $650,000, the condo conversion was a nobrainer, Friedman said. The complex was finished in 2003 and has features, such as 9-foot ceilings, that make it among the nicest apartment complexes in the area.

"It's a very attractive price point for such a prestigious community," he said.

So far, interest has come from young professionals buying their first home, single parents who like the neighborhood's amenities and schools, and empty nesters, many of whom have second homes elsewhere, Friedman said.

Abacus already has an eye on purchasing two other properties in the Carmel area for conversion, he said.

"What's going on between downtown and Carmel is a convergence of factors that reminds us of what happened 10 to 15 years ago in parts of New York," he said.
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