Mish: Can you describe the auction.
Carter: The auction was in a format called "High Bidders Choice". The winning bidder had a choice of condos in pool of similar picks, typically by unit size. There were 1 BR, 2 BR and 3 BR pools being auctioned and the high bidder had his choice of units remaining in the pool.
Mish: How many units of each type were sold?
Carter: 20 2-bedrooms units, 15 3-bedrooms units, 5 1-bedrooms units.
Mish: What was the price range on the units sold?
Carter: $130,000 to $200,000. Total auction proceeds were $5,900,000.
Mish: Does that include auction fees?
Carter: Yes
Mish: What is the primary reason developers are resorting to auctions right now?
Carter: Condo sales by normal methods are practically dead and carrying costs are eroding the developers’ anticipated profits. Sellers are looking for a way to preserve profits or minimize their losses.
Mish: What happened?
Carter: In short, developers overbuilt. The market was distorted by speculators who were flipping units for a quick profit, and that made it look like demand was higher than it was. When the speculators disappeared, reality set in. That reality is coming as a huge shock to many developers and flippers alike: Units are just not going to be sold for prices anywhere close to what was being offered a year ago — no matter what marketing method is used. In many instances flippers are competing with developers to sell units. This is pushing prices down.
Mish: Is this a Florida thing only?
Carter: No, but Florida probably has the biggest oversupply. We are getting calls from developers every day, and several attended the Tampa auction just to see how it works. Some developers who last year had never even thought about an auction are seriously considering it. We have done condo auctions recently in Door County Wisconsin, Austin Texas, Florida, Alabama and Michigan.
Mish: What about supply and demand issues?
Carter: Demand is still very weak, and supply is still increasing.
From that perspective it just seems very unlikely that we are close to a market bottom.
Mish: Are you speaking nationally or just Florida.
Carter: I am speaking nationally, but when it comes to the oversupply, Florida’s the national situation on steroids.
Mish: Was the auction a success?
Carter: Definitely. We had 171 bidders from 15 states -- more than four bidders there for every unit we sold. That’s a good turnout, which tells us we got the current market value. The developer would have offered 60 more units if the prices had been running higher. This is simply a weak market. Still 40 units is a lot of units to move in a weekend and the developer is happy to have reduced his carrying costs significantly. From the point of view of the buyers, many are pleased with the bargains they received.
In a response to a question as to "developer interest" Carl Carter informed me that approximately a half dozen developers showed up to witness the auction. Obviously those developers wanted to see how things went.
Previous Listing Prices
Carter noted that previous asking prices on the condos were in the neighborhood of $181K for the one-bedroom units, $239-289K for the two-bedroom units and $309-340K for the 3-bedroom units. He believed those to be average prices.
A link from NewCondoReality showed prices and numbers of units to be as follows:
1 Bed - from $169KThe above link may no longer be working although it was working on December 10th 2006.
2 Bed - from $220K
3 Bed - from $299K
As of Nov 4th - there are 70 units out of 300 units already under contract.
Let's do the math
Giving everyone the benefit of the doubt, let's assume the original prices offered/paid were at the low end of the range as opposed to the average prices that Carter quoted.
20 2-bedrooms: $220,000 * 20 = $4.4 million
15 3-bedrooms: $299,000 * 15 = $4.485 million
05 1-bedrooms: $169,000 * 05 = $845,000
Total: $9,730,000
Auction total: $5,900,000
Subtracting a 10% auction fee the revised auction total was net $5,310,000 to the seller.
Quick math shows that any investor who bought at last year's prices is now on average 45% underwater, not counting maintenance fees, property taxes, insurance, interest payments, etc. Note too that the developer is still holding 60 additional units he was hoping to unload at the auction but failed to do so. The developer also has another 160 units waiting in the wings. Pent up supply?
The only units sold at the auction were units offered on an unconditional basis (no minimum bid). Inquiring minds might be wondering if this auction was really a "success".
Shell Shocked Comparison
Please consider Shell Shocked in Key West for comparison purposes.
Before the start of the auction, Slokumb had estimated 100 people would attend the event, but more than 200 showed up, with 58 registering to bid. Many chose to hang on to their bidding cards, and those who did bid were cautious. Absent were "bidding wars" with people vying back and forth for the highest bid while the price climbs higher and higher. Instead, most were content to let the property go to someone else for a lesser "bargain."Not a single home sold at that Key West auction. By comparison, the 40 units sold at the Tampa auction has to be considered a rousing success. How else can one look at it? What was the difference? The difference is "unconditional" vs. "conditional". There was no minimum bid required on the 40 units J.P. King Tampa auction. There was a minimum bid on the Key West units.
None of the asking prices were met. The closest bid fell $149,000 short, while bidding on the most expensive property, located at South St., fell more than $2.5 million shy of the almost $6 million asking price.
Please note that I am not attempting to make a hero or a goat out of any auctioneer. Some of the terms and conditions of the auction are set by the sellers, not the auctioneer.
Pent Up Supply
Let's now return to a question I asked Carter.
Mish: What about supply and demand issues?
Carter: Demand is still very weak, and supply is still increasing.
From that perspective it just seems very unlikely that we are close to a market bottom.
Can anyone doubt Carter's reply? Indeed, 40 units sold but how many of those were to the next flipper hoping to unload at a higher price? Did this auction, no matter how successful reduce any supply? Even if it did (which is debatable), what about the condos still under construction in Miami, Tampa, Las Vegas, San Diego, Chicago, Boston, DC, Seattle and countless other places?
What have we learned from this?
- Units will sell at an unconditional vs. a conditional auction
- Conditional sellers are still too stubborn about price
- Anyone "needing" a particular price likely can not get it
- Condo prices have declined 40% in some locations and we still are not at the bottom
- Carry costs are mounting
- There is still pent up supply
Panic has still not set in, but it will eventually.
That event could be years off.
Note: This post originally appeared in WhiskeyAndGunpowder.
Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/
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