It has happened at a rapid pace in downtown Jersey City, even with small multi-unit properties.
In the entire town, 38 applications for condo conversions were submitted to the city from January to June of this year.
But for new owners, it's not always easy to profit. And tenants don't always immediately know whether to buy out their rental unit or move out within the three year notice period.
This is the first part of a two-part article on condo conversions from the perspectives of those who uphold or support the practice and those who are forced out.The process of condo conversion
A condo conversion is the process of transforming rentals into individual for-sale units.
The State of New Jersey has several laws that govern how conversions take place in order to protect both the owner and tenant. Essentially, it works like this:
An owner who plans to convert a building must first give each tenant two separate documents - a notice of intent to convert, and a full plan of conversion. The notice of intent to convert and the conversion plan must be sent by certified mail.
In addition, the owner must give tenants a three-year notice to vacate the rental unit because of the conversion. The notice of intent to convert and the conversion plan documents must be given to all affected tenants at least 60 days before giving the tenants the three-year notice to quit. Tenants' rights
A tenant is expected to look for comparable housing during the three-year period, a task that landlords sometimes help with. If comparable housing is not provided to the tenant within the three years, they may be entitled to five one-year stays. After the first one-year stay, a landlord may try to relocate the tenant or buy the tenant out by paying the tenant for five months' rent or by waiving five months' rent and allowing the tenant to remain in the unit for a five-month period.
During the three-year notice period (or up to eight years in the case of five one-year stays of eviction), rent increases cannot be unreasonable. After the three-year notice period, the landlord may file for an eviction if he chooses to.
State law protects certain groups from eviction for up to 40 years: qualified senior citizens and disabled people. And there are county laws that also protect certain disadvantaged groups.
During the protected period, these tenants must continue to pay rent and follow reasonable rules and regulations, or they can be evicted for some other reason, such as nonpayment of rent. The Army didn't prepare him for this
Jersey City resident John FioRito is one half of a two-man company called Point Capital Partners, an investment group based in Jersey City and Chatham.
The Army veteran works with fellow vet and best friend Ted Williams, an investment broker.
Their specialty is condo conversions, as they have acquired eight buildings with 140 units in nearly two years in Jersey City, and are converting them into condos.
FioRito spends much of his time as project manager, overseeing the conversion work at one of five multi-unit buildings totaling 40 units. They are all located on Sixth Street across from the formidable Sixth Street railroad embankment in downtown Jersey City.
Point Capital acquired the buildings in April 2006 on behalf of investors for $5 million.
FioRito said this is anything but a get-rich-quick opportunity.
"When I think back, I would have to say that based on what I know now, I would have second thoughts about doing this," Fiorito said.
FioRito pointed out that for each $1 million investment in a building, nearly a million was spent on everything from renovation of each unit to retaining lawyers to guide them through the process.
"That's why we do condos rather rentals, because of the massive amount of money just for renovating the buildings, as these buildings date back to the 1880s," FioRito said.
He also said that the condos, if all 40 units were converted, may sell from $250,000 to $300,000. But of those 40 units, the money earned from the first 24 will pay off banks that issued loans for acquisition. Profits from the 12 will go to investors in this project, and money from the last four will go toward paying Fiorito and Williams.
So far, 200 and 202 Sixth St. have not been converted yet. Point Capital may pursue rentals in 202 because of the slumping condo market. Building 204 is currently under construction, 206 has seven of eight units sold with an eighth pending, and 208 has four purchased.
As he was interviewed on Sixth Street near the buildings, he pointed out that two of the buildings were not yet converted, as there were still a total of seven units still occupied by tenants who are exercising their three-year stay option, which means they can stay there until 2009. Dealing with tenants
One of the major tasks for any condo conversion is dealing with the tenants.
FioRito said that after the acquisition of the buildings, he was able to evict several tenants immediately whom he considered transients.
But it became more difficult with senior citizens and those with living on limited incomes.
"I literally drove people in my car to look for apartments; I network with landlords across the city who could put up families who are low and moderate income," FioRito said. "You have to go the extra mile."
He also had to deal with several tenants who went to city officials and complained they were being evicted illegally, only for FioRito and his partner to have to show paperwork in a meeting with City Councilmen Steven Fulop and Mariano Vega.
FioRito said while he understands the tenants' plights, they will have to face the reality of the situation.
"You can hang out in our buildings for the rest of the time, as following state law, and then at the end of three years get nothing," FioRito said. "Or you can move on with your life and you'll have money to relocate someplace else." In a future issue, Part Two will profile the views of tenants, city officials, and others on condo conversions.
For comments on this story, contact Ricardo Kaulessar at email@example.com.