For those who cannot afford brand-new condominium homes, bargains are sometimes possible with "conversion" condo developments. Existing rental apartment buildings and townhouses can be surveyed, with each suite or townhouse being granted a certificate of land title. They are thus "converted" to condominium homes for individual sale. This creates the affordable opportunity for people who might otherwise always rent to become home owners. Yet, because conversions change the legal nature of existing buildings, the structure and mechanical systems can be as much as 100 years old. Historic apartment buildings, churches and warehouses can become funky condo apartments or lofts.
Home shoppers should balance the lower prices of conversion condos against the future expense of maintaining an older building. Before signing, or during the 10-day "rescission" period, the buyer should learn how the building was originally constructed, what modernization has been done, and what may still need repair or replacement in future.
An extra measure of diligence is required compared to buying either new, or a resale condo. In the first case, of course, it's brand new, and likely comes with a new-home warranty. In the case of an existing resale condo, there is a history of reserve-fund saving, spending, and minutes of Board and annual general corporation meetings that will disclose what mechanical issues exist, and what's being done about them. In the case of conversion condos, there are disclosure requirements in the Condominium Property Act, but there's no history available of how the building was built or maintained over the decades.
There's also a limit to potential savings when buying a conversion condo. The myth is that refurbishing old buildings is cheap. In fact, the cost of meeting modern building and fire-safety codes can be staggering. Some conversion condo homes, especially loft-style, can cost more than brand new construction! Yet most conversions are of modest buildings, decoratively upgraded for sale, leaving some mechanical issues for the home buyers to deal with when they are owners. If developers fixed everything, the price of the condo homes would be out of reach, and then the "substantial renovations" (federal tax law) would even require payment of GST on each home's sale price. We don't want that!
Good value is definitely possible for buyers of most condo conversion developments. Yet buyers need to know the nature of the construction and the age of the mechanical systems that were left in place. A realistic reserve fund needs projection is always important, but even more so for conversion condos. Here are some questions I ask on behalf of my buying clients. I'm also known to look into wall and floor cavities and boiler rooms for myself.
* Was the building a rental property with low-quality original construction, or was it a condo development that failed to sell in the recession of the 1980s, and so became rental?
* Is the structure concrete or wood? If it's wood, is it wooden 2" X 10" floor joists or structural floor joists? Are the floors covered with some sound-deadening concrete? Is there insulation between floors? Are suite walls and hall walls double-wall systems or single?
* Even concrete post-and-slab buildings rarely have concrete between suites, so see the above point again.
* If concrete, is it reinforced with rebar rods or "post-tensioned" cables? If the latter, read the current engineering assessment of the cable systems. Confirm that CMHC will insure mortgages in the development, because that agency is shy of un-monitored p-t cable systems in condo buildings.
* How old are the elevator, the various piping systems, the heating boilers or furnaces, make-up air system (for hallways), roof, paving and sidewalks? What of these was replaced, patched or left untouched?
* Is a professional and realistic study in place to project further needed work, and are condo fees adequate to fund those projects? Is the developer putting some of the buyers' money into the reserve account to give them a start? Will special assessments likely be needed in future to cover such additional costs?
While "buyer beware" always applies, the physical situation is more complex in a conversion building than in new construction. While a saving can be obtained over new construction, that's balanced by more uncertainty and somewhat higher condo fees for the additional maintenance and capital reserve that older buildings require. On balance, I can recommend buying a conversion condo, and I've put my money where my mouth is. I own several of them.
Calgary Condominium Directory
