A boom in popularity of converting apartment complexes into condominiums has turned into a bust, driving condo developers into a corner, especially in places such as Escondido, where sales have been particularly anemic.

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As prices began to escalate at rates of 30 percent a year in 2002, the price of owning a home outpaced the cost of renting.

That encouraged speculators to buy apartments, renovate and sell them as condos for a profit.

New condo sales along the Highway 78 corridor peaked in 2005 with 794 sales that year, according to MarketPointe Realty Advisors.

That sort of activity spurred the Meadors of Renfeldt Development team to purchase a decade-old apartment complex near Escondido Boulevard and 15th Avenue for $3 million in April 2005.

Seven months later, home prices in San Diego County and especially in Escondido would start one of the largest depreciations ever.

"You had to buy in 2003 or before to have any chance of pulling off a condo conversion successfully," said Norm Miller, a professor with the University of San Diego's Burnham-Moores Center for Real Estate.

"Anybody who bought in 2005 came really late to the party," he said.

It took the development team more than a year to renovate the complex and put the units up for sale.

While condo conversions countywide have suffered in the downturn, condo sales in North County, especially Escondido, have been decimated: Highway 78 corridor sales are on pace to drop 90 percent from sales in 2005, according to MarketPointe.

Escondido's condo conversion market peaked in 2006 with 236 sales.

So far this year, sales sit at "negative-five" in the city. MarketPointe considers sales contracts that were cancelled as "negative sales," meaning five more sales contracts were cancelled than sold.

Because condo conversions had seen one of the largest ramp-ups in prices, it attracted both developers -- who bought old apartments looking to make millions -- and investors, who bought the conversions looking to make thousands by reselling them.

But once prices started to decline, those investors disappeared, said Russ Valone, chief executive officer of MarketPointe.

"They were affordable enough that Donald Trump wannabes could look at buying the condo conversion and maybe rent it at a break-even," he said. "When you lost that investor mentality, all of a sudden conversions didn't work."

Further, prices have declined to the point where single-family houses are as cheap, or cheaper, than many condominium conversions -- leading first-time home buyers to spurn condos for houses.

From 2005 to 2007, conversion sales countywide dropped by 50 percent, according to MarketPointe data.

Right in the middle of that downturn, Brookhaven's condos went up for sale.

Within the first few months, four of the complex's 20 units sold. Then, sales languished and, in December 2007, the developers were in default on their construction loan, according to county records.

In November, the developer's fortunes apparently turned for the better.

A buyer agreed to buy a condo for $385,000, according to listing data. That price was 50.4 percent higher than the last sale eight months earlier of a slightly smaller condo.

But then two weeks later, the property was deeded back to the developers, meaning the sale was cancelled, according to the county assessor's office.

Nonetheless, one couple, James and Maria Roberts of Tijuana, bought a unit in December 2007 for $360,000 after hearing from a real estate broker that similar units had sold at comparable prices, said James Roberts.

Roberts purchased the condo for $380 per square foot. Discounting sales at Brookhaven, the average price for condos in the area in 2008 were $144 per square foot, according to the Sandicor transaction database.

Meanwhile, sales were drying up elsewhere in Escondido.

Another conversion project a few miles to the north, Sienna Hills, has halted attempts to sell its units because of low interest, said Jeff Zuckerman, senior vice president of Janez Group, the developer of Sienna Hills.

Looking at the Brookhaven sales, "something doesn't make sense," he said.

Zuckerman said he could not understand how Brookhaven's units were selling for $360,000 throughout this year.

"Their area is certainly not as good as Sienna Hills," he said. "And we never sold any at that price. Our last sale was in the ($260,000 to $270,000) range."

Now, Zuckerman said he estimates the Sienna Hills condominiums would sell only if they were priced at $200,000 or less. After investing in the renovations, Janez Group, which is not associated with the Brookhaven development, is not willing to sell the condos for that little, he said.

Instead, the company is leasing out the properties to renters.

The condo conversion fallout was inevitable, said Miller, the University of San Diego professor.

"When speculators enter the market, they're the ones that drove prices up," he said. "Of course, there's no fundamental way to support those prices. You couldn't support it by how much you could rent it for or by how much people were making in income."

Contact staff writer Zach Fox at (760) 740-5412 or zfox@nctimes.com. Visit his blog for more on this story at nctimes.com/blogs/minding_your_business