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Once cheap mortgages vanish, however, condo conversions will become riskier: home sales will slow, and converters may be unable to sell their condos. In a worst-case scenario, converters who pay a premium for struggling apartment projects will be forced to rent unsold condos in a project for which they paid too much — and in an apartment market that likely already is soft, says Nevid of Mountain Funding.

Converters downplay the risks. They contend that the affordability of conversions will become even more attractive to homebuyers in a rising interest-rate environment. Plus, longtime condo players say they never stopped turning apartments into condos, even when interest rates hovered around 17% to 18% in the early 1980s.

And even if slowing home sales force converters to rent their units, it's still less risky than embarking on new condo construction only to see the market crash, says Louis Birdman, a managing member of SunVest Resort Communities in Hollywood, Fla., who has converted more than 6,000 units in Florida since the 1980s.

“The downside risks in the conversion business are a lot less in our opinion because, unlike new development, we already have a physical building,” says Birdman, who claims that he's had no problem selling condos in some 70 previous conversion projects. “We don't find that condos suffer from the same cycles as other businesses — people always need housing in one form or another.”