Here at Catalyst, we take pride in going beyond just simple day-to-day condo management. We consider it our mandate and a genuine part of our role to educate and inform our clients and any inquisitive minds out there about the ins and outs of condo living, condominium Management, and condo knowledge in general.
With this being said, we wanted to take this opportunity to touch on a little-known but fascinating facet of the condominium Management industry: condo deconversions. If you’re not familiar with this term, don’t fret – it’s not one that gets bandied about often. That said, it is a real estate trend that’s been picking up steam in recent years and is one that, depending on what city or part of the country you call home, you may begin to hear more about in the coming months and years. If nothing else, hopefully, you’ll glean some knowledge to share with some folks at the next party you attend (mind you, the crowd would have to be pretty condo-oriented and therefore SUPER COOL to be impressed 😉). Without further ado, let’s dig into the wild world of condo deconversions.
Okay, I’ll bite: What’s a Condo Deconversion?
Essentially, a condo deconversion is nothing more than a ten-dollar term to describe the process through which a condo building is purchased to be converted and sold as apartments.
Oftentimes, the immediate gut-reaction to hearing this is that, hey, isn’t that a bad thing? Doesn’t that put owners out of their homes – or, at the very least, turn their own investment into a rental situation? Well, yes…and no.
There a number of reasons that a condo building might go through the deconversion process – and it’s worth noting that none of these reasons involve any sort of a metaphorical “hostile takeover” situation. To de-convert, depending on local laws and legislation, a majority approval often upwards of 75% is required in order for anything to move forward – and as you can well guess, that sort of consensus doesn’t just come about because a few folks are looking for an easy out from their mortgage.
A Tough Way Out of an Even-Tougher Spot
There are many reasons that condo communities entertain the idea of deconversion – and almost all of them involve money or finances. Generally, there are two big turning points at which deconversion starts getting tossed around as a potential solution.
The first is a situation in which a number of owners have been unable to sell their units for a desired or reasonable sale price. This can occur because of a number of factors. Maybe the building has just gotten a little old and run down over the years and has lost the general shine or luster that made it appealing in the first place. Perhaps it’s lagged behind in terms of amenities when compared to other, newer buildings in the area. Or, it could be that the community the condo finds itself situated in has steadily declined over the years, making it a less-than-desirable place for folks to live.
The other typical motivation that causes buildings to consider the notion of deconversion comes in the form of special assessments. If a condo corporation has done a shoddy job of keeping an up-to-date reserve fund study in place and suddenly finds itself faced with millions and millions of dollars’ worth of necessary, critical maintenance and repairs, it might be that the best option for residents is to simply cut ties and move on, rather than each is faced with tens of thousands of dollars of special assessment fees in the months and years to come.
Whatever the reason, oftentimes deconversion becomes the only sensible or financially-feasible way forward for owners – for better, or for worse.
Does Everyone Need to be Onboard?
More or less, yes, they do. As we mentioned earlier, this all depends on local legislation and often also pivots on the number of units within the condo building, but a healthy majority is required to move forward with a deconversion decision – again, generally upwards of 75%, or with one or less dissenting owners in smaller condo communities. While it may be a tough decision for residents to make, it’s worth noting that owners are generally treated very fairly in these sorts of situations. Units are regularly bought at a premium – sometimes upwards of 150% of their market value – and any individuals wishing to stay in the building are given preferential lease treatment in order to make it easy for them to do so.
Further, in a bulk sale like a deconversion, owners don’t have to find, hire, or work with individual brokers, as this is all handled by the en masse by the condo management company. Additionally, brokerage and legal fees are substantially less under the umbrella of a deconversion than they would be otherwise, further saving owners money as a result. Finally, the buyer will oftentimes honor any current leases or rentals within the building and will assume those leases moving forward as a result, so that even renters are guaranteed a smooth transition throughout the process.
This is All Super Interesting – But Why Should I Care, Again?
Well, in addition to the point we made earlier about these being the best sorts of facts to bust out at a party to help really kick things off (okay, reading through this again, maybe that’s entirely true…), this is genuinely valuable information for any condo owner or board member to have in their back pocket. Not to get all doom and gloom right at the end here, but with the real estate market continuing to be lukewarm at best (and cold at worst) and construction investment across Canada in continual decline (particularly here in Alberta), there could eventually be a situation in which deconversion might be your building’s best option. Now, you’re armed with the knowledge to know that this is actually a decent way to make the best out of an otherwise unfortunate situation.
Want to learn more about deconversion, or interested in chatting about if this decision might be the best move for your building to make? Have another similarly-obscure condo topic you’d like us to shed some light on in an upcoming blog? Give us a shout at Catalyst Condo Management today – we’ll be more than happy to chat any and all things condo.