Keeping the Lights On: With Buyers Scarce, Condos Turn to Rental

by George Waldon  on Monday, Sep. 12, 2011 12:00 am  

CityGrove, on Maple Street in North Little Rock, has six units sold out of 14.

Condo and townhome developers have embraced tenants as the next best thing to buyers in a market long on supply and short on demand. Better to have a rent-generating unit than an empty, unsold one.

Two years ago, eight projects in Little Rock and North Little Rock were home to 434 residential units. The properties, backed by more than $140 million in bank loans, accounted for 120 units sold through September 2009, mostly in the 300 Third project, one of the first to open.

Since then, the developments have attracted 55 more sales and reduced the overall inventory to about 60 percent.

To improve the cash flow of projects, owners have turned to leasing unsold units and often offering residents a rent-to-own option. The purchase program at downtown Little Rock's River Market Tower, introduced less than two years ago, has attracted 40 residents who could turn into buyers.

Under this plan, 20 percent of their monthly rent will be transformed into a down payment on their condo if they exercise the purchase option at the end of the one- or two-year lease. If the purchase option isn't exercised, the owners keep the money.

Rett Tucker, partner in the 20-story project at 315 River Market Ave., said five of these deals were now under contract to become sales.

"It certainly isn't like it was before the bubble burst," Tucker said of the market. "But the lull from the dog days of summer is over, and activity is starting to pick up."

Entry-level condos on floors 6-11 at the River Market Tower, the largest condo project in town, start at $239,000 for one-bedroom units and $349,000 for two-bedroom units. These white-box units have plumbing, electric and heating/cooling in place along with all walls and doors but await flooring, painting and other finish-out details.

From these units, the prices ascend and top out at the 19th floor, where a 2,946-SF unit sold for $1 million.

Scott Howe, the new CEO of Acxiom Corp., looked at buying a condo in downtown Little Rock earlier this summer but experienced sticker shock. Howe couldn't make the big-city pricing jibe with the abundant supply of options.

A marketing effort at Riviera Condominiums also is designed to convert tenants into owners by turning part of the monthly rent check into home equity.

The deal is structured so that 1.5 to 2 percent of the would-be purchase price is held in escrow until the sale closes. This money is collected from a portion of the monthly rent, $1,000 for one-bedroom units and $1,500 for two-bedroom units.

If the resident completes the transaction, the funds are applied toward the acquisition. If not, Riviera keeps the funds as part of the rental agreement.

 

 

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