PAUL'S MARKET JOURNAL

Condo Conversion Arbitrage in Downtown Charleston

Last year, I sold a 4-unit property in West Ashley. From my understanding- the buyer planned the usual strategy: buy, renovate, rent, and refinance. But six months later, I called to check in and found out he'd sold two of the units. Sold them? Yes, he said, and now he owns the remaining two units free and clear.

Here's the back-of-the-napkin math: He bought the quadplex for $650,000, probably put about $150,000 into renovations, and sold two units for $350,000 each. That left him two units free and clear. This success story had me intrigued, especially as condo conversions usually didn’t make sense in our market—until now.

Creativity in Current Market Conditions

In today’s real estate market, creativity is the key to success. High interest rates are pushing investors to find new strategies. One trend that's gaining traction is condo conversion arbitrage, particularly in downtown and suburban Charleston. This strategy is perfect for those looking to maximize returns on small multifamily properties.

The Strategy

I'm seeing investors purchase 2-10 unit multifamily properties in downtown Charleston for about $350 per square foot. These properties, once converted into individual condos, sell for $500-$550 per square foot.

Why Condo Conversion?

Several factors make condo conversion attractive in the current market:

1. Higher Return on Investment: The price difference between purchase and sale offers substantial profit margins. By converting multifamily units into condos, investors capitalize on the higher demand for individual units in prime downtown locations.

2. Market Demand: Charleston's downtown area is highly desirable, attracting both local buyers and out-of-state investors. The appeal of owning a piece of this historic city drives demand for condos. Though the price per square foot is higher, the total purchase price is more affordable for professionals looking to live in the city.

3. Quick Turnaround: The condo conversion process typically takes about six months, offering a solid ROI for a relatively short investment period.

How Difficult Is Conversion?

Surprisingly, condo conversion in Charleston is straightforward. Here are the key steps:

1. Drafting an Updated Plat for Each Unit: Create detailed maps outlining the boundaries and specific details of each new condo unit.

2. Drafting HOA Documentation: Prepare Homeowners Association (HOA) documents to establish the rules and regulations governing the condominium units and common areas.

3. Obtaining City Approval: Submit the updated plat and HOA documentation to the city for review. Once approved, the city provides a stamp of approval.

The entire process typically takes roughly six months.

Example

Consider 35-38 Society St, a property consisting of 10 units purchased for $3.85 million ($396/sqft) in 2020. After conversion, individual condo units are selling for $808-$1,012 per square foot—a more than 200% increase in value at worst! Click here to see Unit I currently listed

The Conversion Process

Although these numbers are generalized, it’s crucial to work with someone knowledgeable about the Downtown Charleston market, as prices per square foot can vary greatly between neighborhoods.

As someone well-versed in Downtown Charleston and backed by a luxury team, I can help identify properties that can easily be converted to condos and ensure they’re marketed correctly to your best end buyer.

I’ve compiled a list of all 2+ Unit Properties that would be a candidate for these conversions in Downtown Charleston and the surrounding area. Click the button below to get the list & reach out to me directly to discuss the potential.

Stay tuned for more insights and trends in next week’s edition of the Charleston Multifamily Market Journal.

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NEW PUBLICLY MARKETED DEALS IN CHARLESTON

As of this week, there are no new listing, and nothing has closed, but 2 properties have gone under contract.

6216 Murray Drive - 12 townhouse units with two bedrooms and one and a half bathrooms each. With 5.50% in place cap rate, units are fully renovated in 2023. Each 1,200 sq. ft. unit spans two stories with a kitchen, half bath, and laundry on the first floor, and two large bedrooms with walk-in closets and a full bathroom on the second. Located in Hanahan, near schools and just 6 miles from Charleston International Airport, this property offers easy access to major grocery, retail, dining, and employers like Boeing and General Dynamics. See flyer here.

112 Growden Ln - The Haven is a built to rent community that offers a substantial value-add investment opportunity in an exceptional location within Charleston, South Carolina. With 6.70% in place cap rate, today’s opportunity is for the next owner to take over and continue to reposition the asset to just below market level rents over the course of two years. As of March 2024 the property is 100% occupied. See flyer here.

The below list contains every single multifamily property (5+ units) being publicly marketed in Charleston that we have compiled from LoopNet, Crexi, Costar, and 2 different multiple listing services. You can also click on the image to view the spreadsheet.

Should any of these properties interest you, please do not hesitate to reach out to me directly. I would be more than happy to provide you with the additional information I have on file.