The price of homes soared to the point where housing was no longer affordable for renters looking to own.

The Meridian Luxury Suites on Flamingo Road east of the Strip is considered one of the success stories of the condo conversion craze. Since it was sold in 2005, all of the 678 apartments in the complex were converted into condos and sold. Today the complex has been turned into a combination of condominium and hotel units. LEILA NAVIDI / STAFF PHOTOGRAPHER

Investors of apartment buildings saw an opportunity and went on a buying spree to obtain complexes, upgrade the units and sell them as condo conversions at a hefty profit.

The market took off with nearly 8,000 units closing in 2005 when investors were in a frenzy and Las Vegas considered a moratorium, according to Home Builders Research. By 2007, the number of closings dropped to 1,612, and the condo conversion market today has virtually ground to a halt - for now.

The same dynamics that prompted the condo conversion craze in the first place are expected to resurface once the single-family housing market rebounds. People are taking note already, said Gary Cuff, senior director of multifamily investments with Cushman Wakefield Commerce CRG in Las Vegas.

"It is interesting because it is still stalled, but there are people beginning to come out of the woodwork looking for deals," Cuff said. "They want to be prepared for the next wave and are looking for complexes they can buy and have ready when the next wave of conversions takes place."

Many major investors see what has happened to those who bought complexes to convert into condos, only to see them sell one-third or half of the units and rent out the rest as apartments, Cuff said.

"The ones that can are hanging on, and the ones that can't are going to be swallowed up by the sharks who will come in and buy these properties for deep discounts and hold them, rent them as apartments until such time they can take them to market."

The investors lining up to buy the remainder of those units want big blocks with $10 million on the small side of the deals at discounts of 30 percent to 50 percent. In some cases, it may be as many of 200 of the 300 units at a complex that are available, Cuff said.

Home Builders Research

"Investors are coming in and saying, 'We will take this off you right now, but here are our terms,' " Cuff said. "They are not overpaying for properties like some people did at the height of the condo conversion craze.

Some owners have lost complexes to foreclosures and others are feeling pressure to the point where they will have to make deals, Cuff said. Lenders have been reluctant to foreclose because they don't want the properties back and are trying to work out deals, Cuff said.

What happened to the condo conversion market was a perfect storm, said Hessam Nadji, managing director of research for Marcus & Millichap. There was an incredible increase in demand that exceeded supply and that led to a bring run-up in prices, bringing more developers into the fold. Then there was an oversupply and the credit crunch kept many potential buyers on the sidelines, he said.

"It was just a painful cycle coming on the heels of an exceptional period when the market was booming. It is the classic boom-bust situations that will take another 18 to 24 months to clean up. It is all about oversupply. There was too much speculation and not enough demand."

With the decline in home prices, first-time buyers would rather spend $150,000 for a small home in a good neighborhood with a back yard than the same prices for a converted apartment, Las Vegas housing analyst Steve Bottfeld said.

The median price of condo conversions in 2007 was $180,000. That's down from $197,140 in 2006 when the market slowed. It was nearly $160,000 in 2005, according to Home Builders Research.

Nadji said he thinks the market won't rebound to any degree for at least two to three years, but condo conversions will be back in vogue once again.

"Oh sure, it is cyclical," Nadji said. "When housing gets tight, and we have another run-up in home prices, eventually it will happen again. The demand will return, and there will be a shortage of product and that will drive conversions."

Cuff said Las Vegas has too much going on for the housing market not to bounce back. With the development along the Strip and job creation, people will move to Las Vegas and need homes.

"Once the market stabilizes, we will see price pressure on homes, and it will be time to look at condo conversions again," Cuff said. "That will be our low-priced housing."

Bottfeld, executive vice president of Marketing Solutions, said there have been bright spots in the condo-conversion industry and lessons to be learned. The best-selling conversions are ones that target people who will live there, rather than investors, he said.

"The one thing you have to do to have success in condo conversions today is not sell them to investors," Bottfeld said. "Because as soon as there is a perception that you are buying into an apartment, you have lost the entire panache. The whole idea behind conversions is the first-time home buyer."

Developers who bought complexes early on and converted them to condos and sold them made tens of millions of dollars, Cuff said. Those who suffered were the ones who came later and were a victim of the housing slowdown.

"The greed meter got going for a lot of people, and they thought they would get in on it," Cuff said. "Some did well, but those who got in late were left holding the proverbial bag when the market slowed down."

Brian Wargo covers Real Estate and Development for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at 259-4011 or at wargo@lasvegassun.com.