It is important to understand the condo conversion process for an existing property, especially the constraints and requirements by the city of Newport Beach, to fully understand and appreciate the value that this portfolio of properties has. The entire portfolio consists of 21 condos at 11 different structures, all of which contain 2 residential dwelling units per structure. These properties consist of either a front and a rear unit, or a first level and second level unit. The condo map is specifically called a common airspace condo where each individual owner would share the airspace and have specific ownership over its living area and specific exterior areas such as garages, patios, decks and yards. In some instances the properties may share common areas or common space such as a common garage, common lawn area or landscaping.
In order to perform the condo conversion of an existing residential property, the developer or owner must prepare and have approved a complete set of architectural drawings including mechanical, electrical, plumbing, roof and structural plans. The property owner must also receive approval from the planning department, as well as the building department, which requires a public hearing by the city. The requirements from the city will also include the separation of common utilities such as water, electric, gas and sewer. This will require that the building be completely re-plumbed and that all electrical wiring be completely replaced, including installation of a new and upgraded power panel. Gas lines and meters may also be required to be replaced as a part of the conversion process and the sewer lines are completely redone as well. This process requires opening up all of the walls in the building in which case any other additional deferred maintenance items that are found would then be required to be replaced. The city also requires that the property be brought up to current code for not only Title 24, but handicap and ADA codes. This requires compliance with all of the most current building codes as part of the construction. Any deficiencies or deferred items which do not meet the current code would be required to be upgraded as a part of this process. This would include fire rating and structural supports of the building as well as energy efficient lighting, handicapped access ways, ramps, staircases, etc.
All properties located within 1,000 feet of the beach also require approval by the California Coastal Commission in order to move forward. All of the properties in the portfolio have complied with all of the city, county and California Coastal Commission requirements and have been approved by those various entities.
The property owner is also required to develop a condo plan, a condo map, as well as CC&R’s which will govern the property, and all of those documents will need to be approved by the city planning department, the city attorney and then ultimately filed and recorded with the county of Orange. These documents have been prepared by a professional civil engineering firm with assistance through a national title company, licensed architect and real estate attorney. All of that documentation is complete for all of the properties as well.
All of the work has been done by licensed contractors with first class workmanship. Any warranties for roofs, air conditioning, plumbing, etc. that were provided by the various sub-trades during the condo conversion process would be transferred with the properties to any new owner.
It is important to note that in 2006 the city of Newport Beach elected to modify its condo conversion requirements for residential conversions throughout the city. These condo conversion requirements became far more restrictive than they had in the past, requiring a litany of additional compliances with regards to codes and upgrade issues, the separation of utilities, replacement of driveways, sidewalks, curbs, as well as the requirement to force the property owner to provide for underground utilities including telephone, cable and electric utilities. This process required the property owner to completely redo all of the electrical wiring and conduit to go underground and construct a subterranean vault to house the cable wiring, telephone wiring and electrical. All of these processes have been completed as well in conjunction with the renovation.
As part of the city’s additional restrictions, they also require additional structural upgrades to each of the properties for wind shear, structural support and reinforcement, especially in the instances of rooftop decks, balconies or support of garages. In many instances this required the addition of steel grade beams, saw cutting of the existing concrete slab and installation of additional footers, headers, shear paneling and structural supports.
The city’s new requirements dictate that each individual unit have a separate individual garage and that each individual unit must have a total of 2 parking spaces with one of them a fully enclosed garage. In instances where the driveway is considered a parking space, the city did not count that as an additional parking space. On a going forward basis, this now requires that any condo conversion in the future would require a total of two full-size parking spaces per unit. Therefore it would require a duplex to have a total of four parking spaces. There are only a handful of the more than two thousand homes on the Newport Peninsula that are duplexes, that have this type of parking setup. By that restriction alone, it would eliminate almost all potential opportunities for conversion in the future. This restriction, combined with the increased cost of construction, code upgrades and functionality issues of the actual units themselves, in addition to the age, make it virtually impossible for any property owner going forward to perform this same type of condo conversion in the future.
It is for this reason that we believe that these properties will continue to go up in value due to the building restrictions for duplicating them in the future. Their state-of-the-art construction combined with the quality of improvements and their location make them superior to other properties.
For additional information with regards to the condo conversion process, you may feel free to contact the city of Newport Beach Planning Department. As part of the due diligence of any sale of the properties, we would be happy to provide a buyer with all documentation throughout the condo conversion process with all of the various governmental agencies.
It is also important to note that, in this type of condo conversion process, the County of Orange requires that the CC&R’s be filed along with the condo plan and the final condo map. In order to be able to effectuate the condo conversion recording with the county, it is a requirement by the County of Orange that all of the taxes be paid in full one year in advance to secure the county in their position of collecting the taxes in the event of the sale of the individual units. This process has already been completed and, therefore, in any ensuing sale of the portfolio, it would not be a requirement of the buyer to post the taxes in advance. This is significant cash outlay that any potential buyer will avoid in purchasing this portfolio.
The typical time frame for these types of condo conversions from start to finish, including all of the planning, architectural, government approval, construction, all the way to completion, is anywhere from 9 to 18 months. This time delay, in and of itself, is also a significant deterrent for future projects by homeowners as it creates significant cash flow drain to perform the conversion.
For additional details on the condo plans, title, condo map and CC&R’s, please see those respective sections under each individual property on our website.