Hub condo conversions on the rise
Building owners aim for middle market
With the demand for renting dropping amid lower interest rates, large-scale apartment owners across the city are increasingly converting their buildings into condominiums.
In a deal valued at $40.5 million, J.S. Karlton Co. is purchasing 108 apartments at The Causeway near North Station for condo conversion. In Kenmore Square, Modern Continental Enterprises is going condo at 534 Commonwealth Ave. three years after renovating the fire-ravaged structure into 28 luxury apartments known as the Charlesview. Raymond Property Group has retained R.M. Bradley Co. to peddle its 30 Belvoir condos, also in Kenmore Square, with a concentration on midlevel buyers.
"We think that's what the market is there," said Raymond principal James English, estimating that most units should sell in the $300,000 range.
Raymond's outlook mimics other apartment owners, said Otis & Ahearn president Kevin J. Ahearn, whose firm specializes in Boston condo sales. Despite high-priced sales at such new Boston properties as the Ritz-Carlton Towers, the Belvedere and Atelier|505, Ahearn insists the real buzz is in the "middle" market, between $300,000 and $800,000.
"We believe there is a lot of pent-up demand for that price point," Ahearn said. "The product just isn't available right now."
While the pace of conversions is on the upswing, it has yet to reach the levels of the late 1980s, when tens of thousands of apartments in metropolitan Boston were put on the block. The latest surge, however, does feature a greater number of luxury apartments going the conversion route.
At the Causeway residences, to be renamed Strada234, real estate brokers anticipate prices will run from $375,000 to $800,000 per unit. The Bowdoin Place condos being developed at 100 Cambridge St. are mostly selling for between $400,000 and $850,000. And Ahearn said he knows of two other prime Boston properties preparing to go condo to attract middle-range buyers, who consist mostly of baby boomers and empty nesters. The million-dollar condo market accounts for only 8 percent of annual sales in Boston.
Rising interest rates, while still historically low, should not quash the surge of activity, Ahearn said, predicting good times ahead for apartment owners taking the condo route. "If you can bring product in below the top of the market, it should do well," Ahearn said. "There's definitely strong demand for it."
Other forces are driving apartment conversions as well. Free rent, brokers' commissions and marketing costs associated with tepid leasing volume are cutting into rental revenue. "In many cases, the only exit strategy today is to convert to condos," said Gary J. Lemire, a multifamily investment broker with CB Richard Ellis/Whittier Partners. Lemire said high-end rents have fallen 20 percent in the city since mid-2000. The slide has also cooled record pricing investors were willing to pay for apartment properties, which peaked with last year's blockbuster sale of Brookline's Longwood Towers for nearly $300,000 per unit.
Modern Continental Enterprises tried unsuccessfully to sell the Charlesview outright before converting the building to condos priced between $260,000 and $570,000. The company's vice president Robert Shepard, blamed the softening rental market, saying it has reached a point "where it now just makes more sense to take the units and put them up for sale.
"The condominium market is still strong," he said, "and interest rates have stabilized, making it very affordable to own vs. renting."
