Condominium Sales Turn To Auctions

Los Angeles Times (Printed in the Cape Cod Times) - May 24, 2009 - By Peter Y. Hong

(Boston Globe) More than 170 people crowded the ballroom of a Long Beach, Calif., hotel for what amounted to an upscale fire sale.

The event was an auction. The products were 38 waterfront condominiums. And bidders such as Mike Murphy came looking for bargains.

The Internet marketing worker snapped up a two-bedroom unit for $376,000, less than half the original price. In all, he and other eager buyers ponied up $14.9 million in less than 90 minutes.

Last week's event represents the latest evolution in distressed property auctions: These last-resort sales are going high-end. In contrast to auctions of foreclosed homes, which are as ubiquitous as trashed houses in the suburban hinterlands, these sales involve new, often luxurious condominium units in prime locations.

Across Southern California, projects conceived during the housing boom, but completed after the bust, are sitting largely vacant. Developers are desperate to unload these units but face some particular challenges. Banks often won't provide mortgages to buyers in buildings that are less than 50 percent occupied, reducing the pool of eligible purchasers. Converting the projects to rentals means even steeper losses because the cash flow often won't cover a developer's construction costs.

Condo developers are now hosting auctions to attract a critical mass of buyers fast. It's a practice that real estate consultant John Burns projects will become more widespread.

"I don't think you have much choice," Burns said. "You either turn it into an apartment rental complex or find some other way to turn it into 50 percent occupied very quickly. An auction seems like a logical choice."

Real estate values continue to fall across much of Southern California, keeping many buyers on the fence for fear of paying too much. An auction gives them real-time assurance that the price is set by an open, competitive process, not the seller's whim, said David Parsky, director of West Coast investments for Citi Property Investors. That's a unit of Citigroup Inc. that is the controlling owner of West Ocean Two, the Long Beach building that auctioned its units.

At last week's sell-off in Long Beach, the lowest price paid was $228,000 for a one-bedroom unit on the second floor of the 22-story building. The developers originally had listed it for $512,800. The highest price paid, $718,000, was for a three-bedroom unit on the 19th floor originally priced at $1,415,600.

Whether these deep discounts were truly bargains depends on how much further the market has to fall. The median resale price for condominium units in Southern California was $230,000 in March, down 30 percent from the same month the previous year.

This article first appeared in the Los Angeles Times May 24, 2009.

Brian Serpone can be reached in the Harwich office of Today Real Estate at 508-568-8104.