The A B C’s of Condo Conversion

Article by Mark McMackin

Generally speaking, a condominium conversion is the process of converting an income property or other land held under one title into individual units for sale. Subject to any specific restrictions that are imposed by municipal or other approval authorities, any type of existing structure can be converted to a condominium. Condominium conversion is possible for all different types of properties, including multi-family residential buildings, co-operatives or co-ownerships, multi-family row dwellings, and industrial or commercial buildings which can be converted into individual housing units or commercial units.

Why are Condo Conversions Popular?

Typically, the market for condo conversions occurs when the price of single family homes increase beyond the reach of the first time buyer. Converted condominiums provide an excellent opportunity for a small percentage of tenants to own their own units given low interest rates and first time ownership grants like those in Peel Region of $10,000.00. Furthermore, due to these market factors, investors, both domestic and foreign, are increasingly interested in converted condominiums as an affordable means of acquiring property for investment purposes. Smaller investors, domestic and foreign, who are now completely disillusioned by the stock market are showing continued interest as well, purchasing several condominium units rather than a large, single-title property. Multiple types of investors, including developers and landlords/owners, wishing to capitalize on this market demand and flexibility on maximizing their return on investment and tax reduction, often decide to pursue condo conversions.

What are the Key Benefits of Condo Conversions?

Condominium conversions can result in significant tax benefits for a property owner because they allow a property owner to take advantage of the lower realty taxes for single-family property units as compared to multi-family commercial mill rates. For example, a multi-family property in Toronto can have taxes of up to 3.8 times the amount that would be paid on the same building if it were composed of a series of single-family condominium units rather than a single, multi-family unit property. Conversion also provides for greater estate planning flexibility for those smaller multi-family owners given the liquidity of the asset. In this circumstance for instance, a 6 unit owner can dispose of a unit at will for any purpose such as retirement. I have also started performing conversions on family owned factories where the parents who own it are unsure of growth in the future due to disinterest of their children.

In addition, condominium conversions generally result in an increase in the value of the units if sold either to unit owners or investor groups. Some of this increase in value comes from the conversion itself, and some comes from minor upgrades to the units and common areas that may occur during the conversion process. In each conversion, it is necessary to offset the amount of the increase by any costs required to bring the building in line with various municipal standards (which normally have been met by virtue of being an apartment complex already). Furthermore, as you are not changing “a brick” on the building municipalities cannot impose development charges or other weighty development measures. However, the net increase can be a significant incentive for property owners considering conversion.

There is an advantage to developers/owners in considering conversion as well. In a market where construction costs are high, a conversion of an existing multi-family structure will often be much more cost effective and easier given the dearth of stick built financing currently available. Even current property owners can take advantage of these benefits; the comparatively fast process of conversion (6-9 months) in most jurisdictions often makes it possible to sell and presell individual units when they are in the process.

For More Information:

Mark McMackin
Ricketts, Harris LLP

Back to Articles Menu