Real estate analysts disagree on whether the troubled condo sector has hit bottom yet in places like south Florida, Vegas and Manhattan.

But a group of nationally-known investment pros have concluded that 2010's the time, finally, to plunge in, buy up blocks of unsold units from banks, and convert them into rental apartments for at least the next four years.

A new player in the so-called "opportunity fund" space popped up in late December - a joint venture called Condominium Recovery, LLC. (L-L-C) The partners include investment banking firm Westwood Capital, long-time apartment investor, developer and manager Gerald Guterman, (gutter-man ) and New York appraisal company executive Jonathan Miller.

Together they plan to acquire as much as one billion dollars' worth of condominiums - twenty two hundred to twenty five hundred units - ranging from entire new buildings to blocks of units in "fractured" condo projects - in the coming 24 months.

Initial targets are New York City and south Florida, where there are bumper crops of troubled luxury buildings with seriously delinquent financing, and banks who urgently need to get them off their books.

In an interview with Realty Times last week, shortly after the launch of the venture, Miller said that Manhattan alone has a "shadow inventory" of 6,500 luxury condo units that are sitting unsold in recently completed or partially-sold projects.

The greater Miami market has about 20,000 similar units, Miller estimated, and the entire New York metro area has about 22,000.

In many cases, he said, "the highest and best use" for these buildings is now rentals, not condos for sale to individual purchasers.

Better yet, he said, banks holding the financing on such projects now "get it," the interest reserve funds supporting the buildings are now tapping out, and the banks have to either foreclose or sell "short" to someone who'll pay them an acceptable price.

The new joint venture has no wild ideas about the strength of local rental markets, by the way.

"We think rents are actually going to decline (in major condo markets)," said Miller, as rising numbers of for-sale condo units and foreclosed houses morph into rentals during 2010 and 2011.

But lower projected rental revenues, in turn, will exert a downward push on per-unit bulk acquisition costs for the joint venture - a trend that may already be visible in Miami.

A bulk-purchase investor recently paid $6.3 million for 20 new, never-occupied units at a high end waterfront project in North Miami for just $223 a square foot. That's down roughly half from where the average price for similar units was just a year ago.

Published: January 6, 2010

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.