Condo Conversion to Apartment Complex

Dallas, Texas
Multi-Family and Apartment Investing
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Condo Conversion to Apartment Complex

Johnny Garcia
Rental Property Investor · Dallas/Fort Worth · Member since 2015 · 9 posts · 7 votes

I live in a condo association with a total of 70 units, a majority owned by investors who rent the units out with about 20% give or take being like myself that own and live here. The complex has a lot of deferred maintenance that our current HOA dues are not sufficient to handle the maintenance and owners have been adamant about not wanting to increase HOA due. At our last board meeting I brought up the option of selling to an equity fund that would buy out each owner and convert to a solely owned apartment complex and the question was well received.

I work in private equity space and have some potential buyers for this project, I'm looking for advise, counsel or an experienced investor to shed some knowledge in this process. If the desire is to be involved in this project, that's an option as well as it is very early on in this process.

If this is an area of expertise for someone on here, please reach out. I can message, hop on a call or meet in person to discuss. 

Thank you and I look forward to hearing the comments about this. 

 

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Sergey A. Petrov
Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
4y

Those 80% that are rented (56 units) - are they owned by just one or two or three investors? Or are those 56 units owned by 50+ individual investors? If just one or two investor groups, get their buy in first. Or maybe they will be interested in a partnership to retain their ownership stake. If you have 70 individual owners, guarantee you, you’ll have at least half a dozen that will need A LOT of convincing to sell. And at least one who will decide to be a hold out and demand double the value for their unit.

Outside of the above your condo docs (and State Statutes) include a section titled something along the lines of “Termination of Condominium”.

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  • Sergey A. Petrov
    Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
    4y

    Those 80% that are rented (56 units) - are they owned by just one or two or three investors? Or are those 56 units owned by 50+ individual investors? If just one or two investor groups, get their buy in first. Or maybe they will be interested in a partnership to retain their ownership stake. If you have 70 individual owners, guarantee you, you’ll have at least half a dozen that will need A LOT of convincing to sell. And at least one who will decide to be a hold out and demand double the value for their unit.

    Outside of the above your condo docs (and State Statutes) include a section titled something along the lines of “Termination of Condominium”.

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  • Johnny Garcia
    OP
    Rental Property Investor · Dallas/Fort Worth · Member since 2015 · 9 posts · 7 votes
    4y

    @Sergey A. Petrov I appreciate the input. Of the owners who own multiple units, they're recorded under entities with each entity owning 3-5, there isn't one majority owner. I haven't dug into the entity structure of ownership for each entity yet, but that is a solid point. 

    Prior to my current role, I assembled small parcels for developers to acquire and entitle. A lot of our structuring required patience and creativity to convince owners we have their best interest in mind. I'm personally interested in the partnership route to keep my ownership stake.

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  • Sergey A. Petrov
    Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
    4y

    If there isn’t a majority owner you might be better off drumming up support for proper budget funding, taking care of deferred maintenance, and reserve planning. Most investors will see tremendous value in a better run community and properly maintained property. This will drive real estate values up. I’ve done a lot of research into major special assessments and just significant budget bumps. That investment, in almost every case, paid for itself with unit values/sales appreciating at a much faster pace than similar units where the community mentality remained “NO dues increases, EVER”. That “payoff” typically occurs within 2 years. 

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y
    Quote from @Johnny Garcia:

    I live in a condo association with a total of 70 units, a majority owned by investors who rent the units out with about 20% give or take being like myself that own and live here. The complex has a lot of deferred maintenance that our current HOA dues are not sufficient to handle the maintenance and owners have been adamant about not wanting to increase HOA due. At our last board meeting I brought up the option of selling to an equity fund that would buy out each owner and convert to a solely owned apartment complex and the question was well received.

    I work in private equity space and have some potential buyers for this project, I'm looking for advise, counsel or an experienced investor to shed some knowledge in this process. If the desire is to be involved in this project, that's an option as well as it is very early on in this process.

    If this is an area of expertise for someone on here, please reach out. I can message, hop on a call or meet in person to discuss. 

    Thank you and I look forward to hearing the comments about this. 

     


     These typically never come to fruition as you will have several homeowners wait till the end and then their asking price will be 5x market value. 

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  • Amin Akhmadi
    Member since 2022 · 48 posts · 10 votes
    4y

    @Johnny Garcia

    I mean, anything is possible! Depends greatly on price.

    I would suggest you go forward with the deal. Even if couple owners would not sell, your returns DO NOT depend on them selling or not.

    It's not like you are developing land.

    And then, you can also flip the units, if the debt needs to be repayed faster, and it wouldnt look out of whack, so overall, endless opportunities here.

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  • Sergey A. Petrov
    Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
    4y
    Quote from @Amin Akhmadi:

    @Johnny Garcia

    I mean, anything is possible! Depends greatly on price.

    I would suggest you go forward with the deal. Even if couple owners would not sell, your returns DO NOT depend on them selling or not.


    Incorrect. The deal does not happen unless each and every owner sells. At that point the return is negative after a good bunch of money goes into underwriting, feasibilities, etc etc etc

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