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Phoenix, Scottsdale Condo Conversions may face regulation

Hello!

There is an insightful article in today's Arizona Republic regarding the condo conversion boom.   Rather than butcher it, we thought we'd bring you it, in its entirety:

 

Cities seek to cut condo conversions

Lesley Wright
The Arizona Republic
Nov. 14, 2006 12:00 AM

A lull in the Valley's condominium-conversion boom is doing little to calm renters who fear they may lose their homes.

City officials who felt stymied in coping with displaced residents view this as the time to try to put controls in place.

Researchers with CB Richard Ellis predict that, even with the slowdown, about 20,000 apartments will be converted to condominiums throughout the Valley before the trend ebbs in a few years.
 
One alarmed resident is Susan Unmacht, who said owners of the Orchidtree Apartments on Camelback Road told her it is turning into condos. The Scottsdale resident moved there a year ago.

"I haven't even unpacked all my boxes," said Unmacht, who will be forced to go to a month-to-month lease in June. "The stress is horrible. I am very scared about finding places for us here . . . (now) that rents have gone up by $300 to $400."

Last year, an overheated housing market increased the cost of single-family homes in the Valley by more than 55 percent. The surge made condos the new starter homes for many families, as some communities throughout the Valley, including Mesa, Scottsdale and Tempe, saw a surge in the number of apartment complexes "going condo."

City officials have little leverage in controlling the conversions because a state law prohibits municipalities from crafting regulations specifically targeting condominiums.

Some cities, such as Mesa and Chandler, recently loosened rules requiring upgrades before sales because of concerns of violating the state law. But Scottsdale and Phoenix officials say it may be time to test the legal boundaries.

"We have found that sometimes the reason for the conversion is to circumvent our landlord-tenant laws," Phoenix City Councilman Tom Simplot said. "That was a huge problem last year when the conversions were really wiping out our rental inventory. Now, instead of going after one owner, we're going after 100."

Scottsdale Mayor Mary Manross has become an advocate for governments wanting to give more scrutiny to conversions. Many residents pulled her aside to share stories of being kicked out of their apartments.

"They had a month or two notice to get out," said Manross, whose city saw 3,500 apartments turn into condos in 2005.

"I've heard this often and not just occasionally," she said. "It's had a lot of human impact."

Scottsdale is ready to take the lead in fighting to change the law, Manross said.

"I don't think there is any reason for us to wait," she said.

Rules, not bans

Most city officials reiterate that nobody wants to halt condo conversions.

The chance to buy a condo, even a 30-year-old apartment dressed up with a new coat of paint and granite counters, allows homeownership for thousands of people, they say.

But they worry that affordable housing for moderate-income residents is disappearing.

Scottsdale's Housing Board finished a yearlong study in October that recommended creating a detailed database and regulations for inspections, more disclosure and increased conversion fees. Currently, most developers fill out a form and pay a $75 fee.

Housing board officials have warned that the city eventually could lose most of its apartment stock.

"I think that's already happened," said Frank Gray, Scottsdale's planning manager. "At this point, we're just trying to keep the patient alive."

Phoenix also has created a task force to understand the law and the conversion phenomenon.

"I don't really think anybody has an answer just yet," Deputy City Manager Ruth Osuna said. "But at least we're talking."

Industry experts say that any moves by cities to control the conversion market come late.

"We have gone through an incredible real estate cycle in Arizona this last 16 to 18 months," said Terry Feinberg, president of the Arizona Multihousing Association. "This has been a cycle I will not see again in my lifetime."

It's a cycle Scottsdale doesn't want to revisit without some municipal tools in place.

Along with changes in the city's code, Scottsdale officials are considering forming a coalition of cities to force change.

Some cities, such as San Diego and San Francisco, require developers to make safety upgrades and offer relocation assistance to tenants. Others are thinking about giving the elderly and disabled extended time to find new housing.

"They seem to do in California a lot for those who are displaced for the conversions," said Judy Register, Scottsdale's neighborhood resources manager. "That's not something I think would be impossible for us to do or would be in conflict with state law."

Room for regulation

The Arizona Multihousing Association, which represents apartment owners, lobbied for the restrictive state law in 1985. But the group said that it would not oppose some regulations.

Feinberg cautioned cities against adopting rules that would make condominiums more expensive. That could close the door to entry-level home buyers and first-time investors.

But he said cities should not fear the industry.

Feinberg said municipal officials clam up when condo conversions come up.

"This is an issue where they are choosing to exclude us from the dialogue, maybe preparing for the battle," he said. "I think it would be possible to make changes we would support."

Phoenix's Simplot said that it may be time to see if the industry will challenge new rules and see what happens in court.



"The city, at a minimum, should be requiring some sort of inspection of these older, poorly maintained structures so when they change hands we know it's a safe building and our citizens are safe inside," Simplot said. "That's the goal. How do we get there? I don't know."



Staff reporter Peter Corbett contributed to this article.
 
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A few thoughts:
 
1.  Even with the return to a normal market, it's still projected that 20,000 apartments will be converted to condos in the next few years.  That tells us that there is still a lot of demand for affordable housing in the Phoenix metro area.
2.  It's great to see that there will be more planning on the go-ahead regarding current renters in these homes; Adam was interviewed by Fox 10 News last year regarding the condo conversion craze; unfortunately, they attempted to put a negative spin on it.  Nearly every residential lease states that EITHER the landlord OR the tenant can terminate the lease with 30 days' notice, and pre-determined penalties.  The news organizations tend to demonize landlords who exercise that option.  Also, in many cases, existing tenants are given first option to purchase, and many times at a price lower than will be offered to the public. 
 
If you'd like more info on condo conversion projects, please contact us at info@weareazrealestate.com.  We strive to visit EVERY conversion, so we can provide our clients with the best info possible!
 
Sharon Kotula, ABR
Adam Tarr, e-PRO
Your Phoenix Area Real Estate Source
RE/MAX Excalibur
Scottsdale, AZ
480-483-3333
www.WeAreAZRealEstate.com

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