Thursday, May 10, 2012

Planning for the Coming Shortage: Conversion Condominiums

As of the end of 2011, approximately 3,010 apartment units in 17 projects were under construction in Seattle, according to the Downtown Seattle Association.  Zero condominium projects were reported to be under construction at that time.  Simultaneously, even bearish sources like the popular blog Seattle Bubble are reporting near-record-low inventories of homes on the market.

While there are myriad reasons to believe the housing market is not yet in a true recovery, there are indications that a recovery is on the way.  The statistics above suggest that when a recovery does occur we may quickly see a strong seller's market for condominiums, while simultaneously experiencing a glut in the multifamily rental market.  While those statistics relate to King County, there is no reason to expect the trend is much different in other urban areas in Western Washington.  In such a scenario, conversion condominiums may be the answer.The Washington Condominium Act (RCW 64.34) allows for conversion of existing buildings (of all kinds, not just multifamily residential), but places special restrictions on conversions, especially with regard to residential properties.  For instance, there are special notice obligations the owner owes to any existing tenants in the property, which are set forth in RCW 64.34.440.  Notices must be given at least 120 days in advance.  Existing residential tenants also have a right of first refusal on the unit they occupy.  A declarant may also be required to pay relocation assistance.

Further, owners often make improvements to units prior to offering them for sale, because purchasers typically have higher finish expectations than renters.  However, owners who have made improvements to a condominium prior to sale will be subject to the implied warranties of quality set forth in the Act, as to any such improvements.  Accordingly, an owner intending to proceed with a conversion ought to be careful in choosing and contracting with contractors to ensure those contractors are providing a sufficient quality of work and making warranties consistent with the owner's warranties to the purchasers.

Approached without care the conversion process can offer substantial pitfalls.  However, if the future dearth of condominium units suggested by some statistics comes to pass, the process will also offer a great opportunity for profit.

- Ryan D. White

No comments:

Post a Comment