Investors question apartment conversion count
The tightening supply of apartment units in the Reno Sparks area may spell bad news for investors who hope to convert apartment complexes into condominiums.
But some investors are beginning to argue that the study used to calculate the vacancy rate in Reno needs a new look a look that might free the path for more conversion projects.
The issue is this: Laws on the books in both Reno and Sparks don’t allow conversion of apartment complexes into condominiums unless the apartment vacancy rate is higher than 5 percent.
At the start of this year, realty professionals who specialize in multi-family projects estimated the vacancy rate might have been as low as 4 percent.
Reno officials agree that the 5 percent threshold appears to have been crossed, and the city isn’t accepting new applications for conversions, says John Hester, the city’s director of community development.
The halt to new applications doesn’t affect condo projects involving the conversion of hotel buildings a popular strategy in the downtown area.
Nor does it affect proposals in Sparks, which uses a different method to calculate the vacancy rateLen Ramos, a multi-family specialist with the brokerage firm CB Richard Ellis in Reno, says a number of potential conversion deals are blocked by city officials’ belief that the vacancy rate is below 5 percent. He argues that the city needs to give a fresh look to the way the vacancy rate is calculated.
The city’s staff currently uses a survey conducted by Johnson-Perkins & Associates, a Reno appraisal company with long experience in tracking vacancy and rental rates in the market.
Ramos notes, however, that the Johnson-Perkins survey tracks only the vacancy rate in large apartment complexes and doesn’t include information on smaller projects such the four- and eight-unit buildings that dot the area.
Then, too, he says efforts to calculate an accurate vacancy rate are hampered because no one knows for sure how many rental units single-family homes as well as apartments are available in Reno.
Third, Ramos says, the vacancy rate differs widely from one part of town to another, and from one type of apartment those that allow pets, for instance to another.
It’s possible, Hester says, that the city might begin using the Nevada Small Business Development Center at the University of Nevada, Reno, to develop vacancy data.
The city’s ordinance allows another route for investors tripped up by the 5 percent vacancy rule. If 70 percent of the residents of an apartment complex approve the condo-conversion plans, the 5 percent rule is waived.
The issue hasn’t arisen recently in Sparks, which relies on investors to provide their own data about vacancy rates.
Karen Melby, the city’s director of current planning, says no applications for conversions have been filed since last autumn.
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