Radius was supposed to be a sellout. Erected in the heart of Hollywood’s revitalized Young Circle, the 311-unit mixed-use condo was designed by an award-winning architectural firm and featured plenty of luxurious amenities.
But the busted end of the real estate bubble left Radius in the shadows of South Florida’s condo market. On Nov. 8, 40 of its units will go up for auction at a starting price of $90,000. That’s 60 percent below previous asking prices.
It’s a sign of the times — and Radius is not alone.
Auctions of commercial real estate and land produced $41.6 billion in sales last year, according to the National Auctioneers Association (NAA). Both commercial and land auctions have seen sales grow more than 30 percent since 2003. Still, there are challenges with this sales model in the current market, particularly in Florida, where investors in distressed properties still seek a bottom lower than current levels.
“Auctions set the market value and sellers are uneasy with the realization that their property is only worth what the consumer is willing to pay and are concerned about a loss in their properties market value,” said NAA president Tommy Williams.
“In addition to seller apprehension,” he continued, “today’s buyers are concerned with purchasing assets in an uncertain economy and do not see eye-to-eye with sellers on the true market value of their property.”
Accelerated Marketing Partners, a Boston-based residential real estate firm that develops marketing and sales programs that include auctions, is working to bridge the gap between buyers and sellers in a tough condo market.
“We acknowledge the challenges and turbulence in today’s market and are looking to buyers to tell us what these condominium residences are worth, and we will accept their decision,” said Jon Gollinger, the co-founder of Accelerated.
At Radius, the 17 one-bedroom homes going on the block starting at $90,000 range in size from about 690 square feet to 863 square feet. These homes had previous asking prices up to $267,000. The 17 two-bedroom homes range in size from about 1,000 to 1,400 square feet with minimum selling prices starting at $135,000. These homes previously sold for $420,000.
By comparison, another Accelerated Marketing Partners auction, in the West Palm Beach luxury condo the Edge, is selling at 70 percent below previous asking prices. That auction is set for Nov. 15. The Edge’s developers have worked with Accelerated to auction units at several condo properties and are confident in the model.
“We have had success with Accelerated Marketing Partners’ auction strategy for other properties in Florida and believe that this event will attract a large amount of qualified buyers,” said Jay Jacobson, partner of the South Florida division of Wood Partners a multi-family real estate development firm with offices in Boca Raton.
Accelerated Marketing Partners typically attempts to auction 30 to 40 units at any given condo project. Gollinger said the depth of the market usually can’t tolerate more than 40 sales in one auction, but if his firm can broker 30 or more units sales in the course of an hour-long auction there is value for all parties.
The firm has a good track record, auctioning 33 of 40 properties at the launch of City Group in Long Beach and 30 of 40 at Orlando’s Solaire. Accelerated’s sales team closed another 12 units in the two days following the auction in Orlando.
“We usually have 150 to 200 people register to tour the properties, so our sales team goes back to follow up with them after the auction is over and we are able to sell the balance quickly at the established market value,” Golinger said. Accelerated has a joint venture with Wells Fargo to close the financing.
The auction model has proven successful in real estate. So successful that experts predict the market will see more auctions in the future, particularly as the market resets itself in coming years.
In fact, real estate industry investors and professionals expect financial and real estate markets in the United States to bottom in 2009 and flounder for much of 2010, according to the Emerging Trends in Real Estate 2009 report released this month by the Urban Land Institute and PricewaterhouseCoopers LLP.
That means ongoing drops in property values, more foreclosures and delinquencies, and a limping economy that will continue to crimp property cash flows, the survey determined.
Emerging Trends respondents believe financial institutions will continue to see pressure to move bad loans off the balance sheets, with auctions as a primary vehicle to speed up the process.
Indeed, the auction is going global in commercial real estate sales. Sheldon Good & Company Auctions International, a real estate auction company based in Chicago, announced a series of auctions last week to be conducted under a five-year agreement between the auctioneer and the Urban Land Institute.
The first auctions will be conducted on various dates in late November and early December, and include the 10-acre, tri-towered Hurricane Cove Marina in Miami and a 37-acre development site in Port St. Lucie. The total auction series is expected to generate $100 million in sales.
Steve Good, CEO of Sheldon Good, said auction discounts range from 15 percent to as much as 70 percent of market prices of just a year ago. That’s a contrast to 24 months ago, when Good ran auctions to drive the highest possible prices for land and properties instead of bargain basement prices.
“The downturn has manifested itself differently in different geographies,” said Good, 2009 chairman of the National Association of Realtors’ Commercial Division. “We are processing $200 million a month in auctions and we’re turning away 60 percent of our leads because many properties are overleveraged. It’s a very serious problem, but auctions are helping many distressed properties.”