While often, and perhaps unfairly, seen as a sign of desperation by condo developers unable to move units, the developers at one Jersey City condominium say that a property auction — to open sales, rather than close — has worked for them.
The Saffron condo building, a $25 million project at 217 Newark Avenue, developed by Fields Development Group and TreeTop Development, celebrated its “pre-opening” of sales this past Sunday with an auction.
The auction included nine units — five two-bedrooms and four one-bedrooms out of 76 homes. These sold out so swiftly that James Caulfield, a partner with Fields, said the developers allowed so-called “step-up buyers” (buyers willing to buy units not included in the auction for the highest bid of the last round of bidding) to purchase six other units after the bidding closed.
The top bids for the one- and two- bedrooms were $322,000 and $440,000, respectively, around $25,000 and $59,000 lower than the average asking prices comparable units will have when they hit the market next month. Even though the units sold for less than market rate, Caulfield said the benefits for selling a chunk of units quickly outweigh the losses.
“[We knew] we were going to take a 15 percent hit across the board,” Caulfield said. “We could have gotten these deals but they would have closed in three to six months.”
Instead, Caulfield said, the two partnering firms have created sales momentum that could help them move on to new projects more quickly. Selling fast will help the building gain Federal Housing Administration approval sooner, he added, and will help with the developers’ obligations to their lenders.
Jeff Hubbard, a senior managing director with Sheldon Good & Company who helped conduct the auction, agreed that the pre-sale strategy benefited the developers.
“The buyer gets a discounted price and the developer moves a lot of units of inventory at one time,” Hubbard said. “It’s a win-win.”
Among the benefits created by selling a large group of units in an auction, Hubbard said, is an enhanced legitimacy for a project and greater sales momentum.
Hubbard said that this is the first time that his company, which is based in New York City but manages auctions nationwide, has helped launch the sales at a building. Typically, Sheldon Good helps sales midway or toward the end of a building’s sales effort — the group helped close out the first phase of sales at the Beacon, also in Jersey City, with a 31-unit auction, for example. Even so, Hubbard said that more developers are embracing the idea of launching sales through auctions.
“I don’t know that it makes sense for every project,” Hubbard said. “But the marketing process is being viewed by developers as a viable alternative.”