With the average price per unit (”PPU”) surpassed the $200,000 mark for walk-up apartments and in doing so, marked the possible end of condominium conversions for apartments. With apartment PPU’s now trending between $200,000 and $250,000, some apartments now cost more per unit than similar walk-up style condominiums.
In essence, an investor can purchase ten separate walk-up condominiums for less than a ten-unit apartment building with similar cash flow returns. In the past, developers seeking condominium conversions gauged the viability of a project based on the potential market resale value of those converted units.
However, with prices being at or above condominium resale values, these projects no longer make sense. Unlike the new condominium projects fueling the Kaka’ako condo boom, apartment conversions are usually priced much lower due to the lack of amenities and age of the properties.
The loss of apartment conversions won’t be felt immediately but will definitely leave a gap in the market for many entry-level homebuyers. Eventually their only option will be to continue to rent, which will fuel the rental market and continue to drive investor demand for apartments.