Fitch: U.S. Condo Conversion Market Shows Signs of Overheating.NEW YORK -- As condo conversion activity continues to intensify throughout the U.S., so does Fitch Ratings' concern that many of these markets are becoming overheated o·ver·heat v. o·ver·heat·ed, o·ver·heat·ing, o·ver·heats v.tr. 1. To heat too much. 2. To cause to become excited, agitated, or overstimulated. v.intr. , which may ultimately lead to higher default rates, according to a special report by the agency. The total volume of apartments purchased for conversion increased an astounding a·stound tr.v. a·stound·ed, a·stound·ing, a·stounds To astonish and bewilder. See Synonyms at surprise. [From Middle English astoned, past participle of astonen, 350% last year to $13.3 billion. Fitch finds condo conversion loans to be riskier than traditional CMBS CMBS See: Commercial Mortgage Backed Securities loans given the elements of construction/renovation risk, conversion stage risk and market risk inherent in all condo conversion loans, so much so that Fitch expects approximately 10% of condo conversion loans originated in 2005 to default. "Projects requiring significant construction or in the early stages of the conversion approval process are more likely to delayed, as evidenced by condo conversion projects in markets such as New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. , Las Vegas and Florida," said Dina Treanor, Director, Fitch Ratings. "The lure of a quick profit is also attracting inexperienced developers, which increases the probability of defaults on condo conversion loans, especially in an overheated market." As part of its criteria on condo conversion loans, Fitch believes that the sponsor and its team should have prior experience with condo conversion projects. Furthermore, the loans should be structured with up-front conversion cost and interest reserves. Finally, the loan should be paid off entirely before any money is returned to the developer. "The current breakneck break·neck adj. 1. Dangerously fast: a breakneck pace. 2. Likely to cause an accident: a breakneck curve. pace of condo conversions is not sustainable, particularly when interest rates rise and markets are overbuilt o·ver·build v. o·ver·built , o·ver·build·ing, o·ver·builds v.tr. 1. To build over or on top of. 2. To construct more buildings in (an area) than necessary. 3. ," said Treanor. "The Condo Conversion Market: Heating Up or Over-Heated?" is available on the Fitch Ratings web site at www.fitchratings.com. Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from this site, at all times. This document will remain on the public site for seven days. |
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