Condo-Conversion Kings

Condo-Conversion Kings

By Sean Roth

Real Estate Editor

Palmer Ranch is going condo. The upscale 5,200-acre community in Central Sarasota County went from five apartment compelexes to four to three to two. Two weeks ago, a major condo converter purchased one of the remaining apartment complexes, and all signs point to the fifth being purchased by another converter in the coming months.

At the center of this activity is Miami Lakes-based Prestige Builders Partners, which owns three of the five Palmer Ranch apartments. It is the largest converter of condominium units statewide.

On Aug. 12, the company set a record for the largest multifamily complex purchase closed in Florida when it acquired more than 1,500 units in Broward and Palm Beach counties for $315 million. The company is also attempting the largest individual property condo conversion in the state with the 969-unit, 17 building Las Vistas at Doral.

So far this year, Prestige Builders Partners, ranked as the 32nd largest private company by gross revenues in South Florida by the South Florida Business Journal, acquired more than 12,000 units in Florida. The company projects sales from its current inventory of properties will pass the $1 billion mark by the second quarter of 2006. On the Gulf Coast, Prestige Builders Partners owns almost 6,000 condominium/apartment units in 18 communities from Tampa to Naples (See Properties chart).

Created in 1994 as a partnership between Jose Boschetti and Marty Caparros Jr., Prestige Builders Partners began life as a development company building primarily single-family homes, industrial buildings and small strip centers in South Florida. But as land availability declined and prices climbed, the company started expanded into condo conversions. The company currently focuses its efforts in four general markets: South Florida, the Gulf Coast (Tampa, Sarasota, Naples and Fort Myers), Jacksonville and Orlando.

Real Estate Editor Sean Roth recently caught up with Prestige Builders Partners' managing director of acquisitions Larry Baum about the company's strategy shortly after the company's $44.3 million purchase of the 320-unit Citation Club in Palmer Ranch. The following is an edited version of that conversation.

How do you find good communities to convert?

We look for sites that are in a good location, with good exposure and nice demographics. Just nice residential areas. Somewhere where I would want to live. We have a very good knowledge of each of the markets we are in and its demographics.

We know Florida really well. You could mention just about any market in Florida, and we would know if it is a good location for residential.

We also have a good relationship with a lot of the brokers in these areas. Ninety-percent of our deals are direct deals. These properties are never listed (for sale.) These brokers know we have never dropped a deal. We never retract a contract, and we never let there be a fight over a commission. If the seller won't pay the commission, we do.

Obviously, Prestige feels that Palmer Ranch fits that mold.

Absolutely. Palmer Ranch was one of our target markets. It's just a beautiful area. Houses there start at $350,000. It is just a very desirable area to live in. If you choose not to live on the water you want to live in a community like that. But it also comes down to the apartments that were available, and they were just perfect.

Prestige has been able to maintain a fair amount of price control (See Sarasota Price Creep). How did you accomplish that?

Part of this is because we are so known in the marketplace. Sellers usually come to us directly. Right now we are the largest condo converter in Florida, there is another company based in Florida that is the largest developer in the country, but we are the largest in the state. This year we bought about 12,000 units so we have a lot of buying power. A lot of people would rather choose to close with us than one of the newer guys who's trying to get into the business.

We are also very disciplined in our buying; we make sure we are getting what we expect for the price.

We always do a lengthy due diligence. We start that early because sometimes we may only have 15 days to close. We spend about $50,000 before we even get interested. I know it's a gamble, but it's better to spend $50,000 to avoid a $50 million mistake.

Given all the hot real estate markets how do they stack up?

Miami, Broward - the South Florida market is clearly the best. Sarasota and Naples are probably the second hottest and then Orlando.

But Orlando is still a really good market, much better than Tampa. I hear Tampa is a good market for things like restaurant franchises. A number of them are opening there and the demographics look great. But it is a much more price sensitive than the other markets (for residential).

What is your M.O. after you find an attractive city or region?

When we go into a city we try to build a presence there. We are not just going to do one deal and get out. We try to do two to seven deals in each city. You can see this with our work in Sarasota.

Are you going to buy the sole remaining Palmer Ranch apartment complex?

No somebody else is buying it. The Mayfair (on Palmer Ranch) is the sister property of the Savoy. We bought the Savoy for about ($93,000) a unit next door. (The owners of the Mayfair) are asking $200 a door.

This is what is happening all over. The markets are getting tighter and tighter for us, and the number of available apartments is shrinking. Lots of people are getting into these deals. There is a lot of stupid money out there. But they are welcome to make their mistakes. I have had a lot of owners call us in after the contracted owner backed out of the deal.

What is the best deal you've ever done?

All our deals are good. Anything on Palmer Ranch has done well. It is just beautiful there. The people are great. Sales have gone excellently.

How do you fund these deals?

Just like most other land deals, we use mortgages. In some instances we have had to pay cash, and we can do that - we're big enough to be able to make that happen.

Do you limit sales to investors?

Absolutely. Our contracts are not assignable.

Do you have any advice on dealing with current tenants?

By law, they have 45 days to buy, and we make sure that they know that if they do buy they are going to get a tremendous deal. We suggest that they do whatever they can to borrow enough to buy the unit, because we will offer them a great value. We drop the notices personally to each tenant. It's a little one-on-one sales meeting. We want them to know that we absolutely want them stay and buy in.

Have any of your purchases remained as an apartment complex and if so why?

Yes, because some of these properties we keep as apartment as a long-term hold. It really just depends on the market. Sometimes we can just get a better return as a rental. It is very hard to find a better deal for the cash flow. Some of it is also about inventory for the future.

More than 10% of our properties are rentals.

What do you guys do better than anyone else?

We have an excellent system in place. This is something we can replicate anywhere; it's almost a franchise. We can go into any city and then build a presence. We like to grow to about 1,000 units. We install an office that stays there. We integrate ourselves into the community. It just makes us successful.

What would be the key indicator for you that the company may want to diversify out of condo conversions?

When prices get so expensive we can't make any money doing it. Even higher interest rates right now could help. It might be able to weed out some of the smaller players. It would slow sales, but if there aren't as many people bidding on properties; things would equal out. Pricing is really what is killing this market. Florida is becoming nuts. We just won't be able to buy existing units if thing continue this way.

We are even allying ourselves with some of the bigger builders of apartments to buy some new construction projects.

Where will the company be in five years?

We will be all over the country. We are starting to make moves out of Florida right now. I can't go public with where yet.

Prestige Builders Partners'

Gulf Coast properties

Name Units City

The Grand at Gateway 312 Fort Myers

Milano Place 384 Fort Myers

Musa at Daniels 300 Fort Myers

Royal Greens at Gateway 312 Fort Myers

Bella Isles 356 Naples

Briar Landings

at the Enclave 240 Naples

Lake Isle 368 Naples

Bellaire Lakes 358 Sarasota

Garden View Villas 224 Sarasota

Serenade at

Palmer Ranch 324 Sarasota

Name Units City

Citation Club 320 Sarasota

Vintage Grand

at Palmer Ranch 432 Sarasota

Villa D'este 320 Sarasota

Equestrian Parc 384 Tampa

Highland Lakes 433 Tampa

The Preserves

at West Chase 300 Tampa

Tuscany Bay 370 Tampa

Tuscany Gardens 248 Tampa

Total 5,985 18

Source: Creative Mindworks Corp.

Sarasota's Price Creep

Date closed Apartment name purchase price units per unit price

October 2003 Villagio $29 million 320 $90,625

October 2004 Savoy at Palmer Ranch $30.175 million 325 $92,846

February 2005 Camden at Palmer Ranch $41.472 million 432 $96,000

July 2005 Summer Cove $34.72 million 336 $103,333

September 2005 Citation Club at Palmer Ranch $44.3 million 320 $138,438

September 2005 Gateway Lakes $55.5 million 358 $155,028