Developers having trouble selling luxury condominiums the old-fashioned way are trying another tactic: auctions.
“It takes the longer period it would take to sell and condenses it down to a shorter time,” says Jim Corum, president of real estate auction company Real Estate Disposition Corporation.
Many of the developments—in cities like Chicago and New York—began construction at the height of the real estate market, filling the buildings with every amenity possible, but were completed just as the housing crisis hit. As a result, many apartments remain vacant.
The auctions are seen as both a way to attract bargain-hunting buyers still on the fence on whether to buy and get the condos sold quickly.
One development going the auction route is Solaria, a luxury high-rise in the Riverdale section of the Bronx in New York City. Despite a roof deck, a telescope observatory and a children’s play area, only ten apartments in the building have been closed since it opened in 2007. In all, 54 units will go up for auction in Manhattan on Nov. 22. The auction is being conducted with California-based Real Estate Disposition Corporation.
Starting bids are at times more than 50 percent below the list price. One of the less expensive one-bedrooms at the Solaria, for example, has a $299,999 starting bid but was originally listed at $660,000.
“Buyers are fearful of stepping up,” says developer Joseph Korff, president and CEO of Arc Development, explaining why sales have been slow. People had been coming to see the apartments, he adds, but are reluctant to make an offer, unsure if the real estate market has bottomed yet.
Selling real estate through auctions puts urgency on prospective buyers to make a decision on the purchase, says Chris Longly, the deputy executive director of the National Auctioneers Association.
“If you want this property you have to show up, or it’s going to be gone,” says Longly. He notes real estate auctions are the fastest growing type of auctions, growing by 47.7 percent between 2003 and 2008.
Outside of New York, real estate firm Accelerated Marketing Partners has conducted auctions for about 65 new developments in the past 18 months in cities like Boston, Chicago, Philadelphia and Atlanta, generating some $750 million in sales, says Jon Gollinger, CEO and co-founder of the firm.
“It’s extraordinary really,” says Gollinger. “In the 1990’s cycle, it was nothing like this.”
Last weekend, an auction that his firm arranged for Michigan Avenue Tower II, a new luxury building in Chicago, sold 47 units, Gollinger says, seven more than were originally part of the auction.
At Bryant Back Bay, a luxury development in Boston, an auction conducted by Accelerated Marketing Partners put up 10 units for auction, but demand was so great, more were added and 18 were sold, Gollinger said.
On Nov. 21 another development is going under the gavel, this time in Nashville, Tenn. Called Terrazzo, the developers are hoping to unload 31 units. Again, starting bids are about 50 percent below asking prices. A two-bedroom apartment in the Terrazzo, for example, has a minimum bid price of $250,000 that was originally asking $534,900.
As for the Solaria, Korff says that interest in the building picked up after the placement of an ad in "The New York Times" and posters in the neighborhood.
In a couple of days hundreds of people showed up to view apartments, compared to the dozen or so who looked at the apartments every week before the auction.
Three or more buyers have registered preferences for each of the 54 units, Korff said.
While the Solaria auction is being billed as one of the first for a luxury high-rise building in New York City, it's unlikely to be the last.
“Coming down the line there will be more,” says Gollinger. He predicts that in the next 15 months, New York City could see ten additional auctions.
“It’s an indication of things to come,” says Gollinger.