LAST YEAR CONFIRMED THE CONDO craze. Existing condo and co-op sales set their ninth annual sales record, according to the National Association of Realtors. Condo price appreciation outpaced single-family homes, and the median price for an existing condo nationwide—$193,600—surpassed the single-family figure of $184,100.

Within the condo craze, another trend is creating opportunities. Bargain-basement interest rates have propelled apartment owners toward selling units and renters toward buying their first homes. Increasingly, condo conversions—renovated apartments offered for sale as individual units—are the solution.

The trend started in 2002, driven by the high cost of land for new construction and the need for more affordable for-sale housing across the country, says Dan Fasulo, senior associate at Real Capital Analytics, a market research firm based in New York. Builders and developers bought $9.9 billion worth of apartment complexes in 2004 with the intent of converting them into condos, he says.

Nearly $1.5 billion of those purchases occurred in San Diego County, according to Real Capital Analytics. Housing affordability is a hurdle in the county, where prices jumped more than 21 percent last year, and the median price of a detached single-family home hit $535,000, according to the San Diego Association of Realtors.

But condo conversions are helping to bridge the gap. “Our great crisis is adding affordable housing, and conversions are really the only solution to that,” says Gary London, president of The London Group, a San Diego–based real estate advisory firm. Almost 3,000 units were converted in the county last year, and they sold at a median price of about $300,000, he says.

Post Properties, which owns about 25,000 units in 10 cities, has begun converting some rental properties into condos.

“You could argue that we might have done this earlier than we did,” says Dave Stockert, Post Properties' CEO. Condos give the company a new way to meet the desires of its customers, many of whom have been attracted to buying by low interest rates, he adds. Post's first two conversion projects, in Dallas and Tampa, Fla., are being done in submarkets where condos are especially attractive and can be competitively priced.

London cautions that there are a finite number of apartment buildings that make good candidates for conversion. “It is a window that will shut eventually, when the convertible inventory is exhausted,” he says.

Learn more about markets featured in this article: San Diego, CA.