Condominiums and rental apartments share similarities in the size of units and the buildings in which they’re located, but have one key difference: ownership. Apartment dwellers pay monthly rent to the building’s landlord to live in the unit, whereas condo units are owned by the occupants. For a variety of reasons, including to cash out of the property, building owners may look into converting apartment buildings or other shared tenant properties into condos.
In addition to being an exit strategy for the owner of the property, converting existing residential or commercial buildings into condominiums can be a cost-effective and quicker approach for developers to create housing than constructing new homes or buildings. In some cases, converting buildings into condominiums provides more affordable housing. These conversions are also often initiated due to a scarcity of land and high demand for housing.
Condo conversions can benefit tenants in a variety of ways, including the opportunity to own housing, sometimes at a relatively affordable price, as the cost to insiders’ is usually lower than what similar properties on the open market sell for. Moreover, owning a condo unit can be easier to manage than home ownership, as common spaces, including pools and fitness facilities, are usually cared for by a condo owners association. Condo owners in the building, however, will likely have to pay monthly condo fees for the upkeep of these areas.
Tax savings and equity retrieval are among the benefits for landlords and owners who facilitate condo conversions. In some jurisdictions, owners could receive a property tax reduction of up to 40 percent. Moreover, the property, once officially converted, is considered single family dwelling units as opposed to a multi-residential building, which is often taxed at a higher level. The added value of condo buildings also allows owners to borrow more against the property.
There are, however, also possible disadvantages to tenants during condo conversions. The purchase price may be outside of their price range, and building management could decline depending on the experience and commitment of members of the condo owners’ association. Conversions could displace rental tenants, but many states have laws in place to protect renters. Some states even give renters a vote in whether the building owner can transform the property into condominiums. In New York, 51 percent of a building’s tenants need to vote in favor of a condo conversion.
Chicago is considered the birthplace of condo conversions, as the notion was conceived by area attorneys Joseph Moss and Harold Miller. Moss and Miller completed the first-ever condo conversion in the US in 1964, transforming a three-story, 16-unit building in the Hyde Park neighborhood into a condominium complex. The two attorneys pitched to the building’s tenants that they could own their unit while paying the same or less than their current rent each month, and also receive a tax deduction.
Following the success of their first conversion, Moss and Miller recognized there was a surplus of similar properties owned by banks, insurance companies, and other financial institutions. They also realized these institutional owners had trouble earning a profit on selling residential properties as rental apartment buildings. They continued to convert apartment buildings in Hyde Park during the next few years and, by the 1970s, condo conversions had become common throughout the US
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