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Thursday, Oct 6, 2022

Irvine Brokerage Assembles Local Team to Auction Off Condos

Sperry Van Ness, an Irvine-based commercial real estate adviser, has a solution for local developers getting sucked dry by unsold condo properties: auctions.

Sperry has assembled a team in San Diego to gauge interest in what it says can stop the red ink.

“We’ve been in discussions with developers who are looking at a potential exit strategy,” said Louis Fisher, a veteran auctioneer who is president of Sperry Van Ness’ marketing arm. “We decided to come here and put together a team of professionals in the marketplace. Our concept is that in order to be successful, you need the right players.”

In addition to Fisher, those players are Jim Taylor, senior vice president of Sperry Van Ness-San Diego; Greg Neville, president of Pacific Land Group in Carlsbad; and Jeff Brummitt, a broker with One Source Realty in Mission Valley.

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Sperry has run auctions in most states, primarily in the South and Southeast as well as the Northeast and West Coast.

Marketing costs typically range up to 2.75 percent of the value of the property sold at auction.

Last year, Sperry auctioned off 75 properties valued at $300 million.

Local condos that are a good fit for auctions fall into three categories, said Fisher. The categories are: finished units, either new builds or condo conversions, with a sales force on-site; new buildings that are not fully completed where sales have slowed; and projects with land that has been entitled for condos in a market that has softened.

“We are very selective of who we take,” he added.

Fisher said developers they accept are given certain assurances, including that their properties will be marketed in a way to create a “sense of urgency.”

“Through this process, we will force decisions on prospective purchasers to get off the fence,” he said.

And, based on the terms of the transaction set by the seller, “We will achieve market value,” said Fisher.

But some developers aren’t very realistic about what an auction can accomplish, he said.

“People look at us optimistically, that we are magicians,” he observed, “while pessimists call us morticians.”

They are neither, said Fisher.

“We are clear on what works , a good marketing effort, informing buyers and the brokerage community what they need to do prior to the event. Buyers must do all their due diligence in pre-sale. Once the auction takes place, the contracts are non-contingent.”

Natural Market

San Diego’s softening condo market makes it fertile ground for auctions, said Taylor. “San Diego is a natural market for what we offer, because there are thousands of units not being rented or sold,” he said. “We can accelerate to sell them at one time, and provide opportunities for first-time buyers.”

But gauging the number of troubled condo projects in the county hasn’t been easy, said Taylor.

“We are having a hard time getting a handle on that,” he said. “No one wants to say that their buildings are underperforming.”

Neville estimates that most projects are selling only three to four units a month, compared with the 20 units a month a year ago.

“It seems like an auction and an accelerated sales program is the way to go , especially for developers who are still fairly strong, and maybe sold half their property, and have to sell the remaining units,” said Neville.

While owners might not get what they thought they would at auction, “Would they rather keep making interest payments to the bank , huge monthly payments?” said Neville. “The quicker they can get the property sold, the more money they will be saving.”

And, for developers, the clock is always ticking.

Condo Comeback

Alan Nevin, director of economic research for MarketPointe Realty Advisors in San Diego, said that the condo market appears to be rebounding.

“We are almost to the point where we are in a normal situation,” he said. “We will probably do 32,000 resales this year, and about 12,000 will be resale condos. It’s not like it’s been a bad year.”

Another positive sign is the exodus of what Nevin considers to be dilettante real estate agents, who jumped in for a quick buck, and jumped back out when the market started to soften.

“Brokers who are full-timers and really professional are doing OK for themselves,” he said.

Douglas Wilson Cos., a San Diego builder, is the receiver , or replacement operator , for four area condo conversions, and expects to add two more by January, said David Stapleton, a company director.

Some developers came late into a cycle, and paid too much for their property, “with the assumption you would sell 10 to 15 units a month, then you only sold three or four,” he said. “The interest costs can bury the project.”

In these cases, an auction was not an option, said Stapleton.

While auctions work for developers who have sold all but a few units, Stapleton said that his properties are not ready for “bottom feeders,” as he calls them.

“The developers and lenders feel that they can get better prices not going the auction route right now,” said Stapleton. “An auction is a last resort, and you need a lot of interest to move 100 units in a day.”

And, in the case of condo conversions, the owner can usually rent them out as a stopgap measure, he added.

Residential broker Brummitt, who has worked with Taylor on projects over the years, said that he found the auction concept “fascinating” when he was first tapped for the team.

“I will be interested in learning a new way of doing something,” he said. “I’m not sure what I’m getting myself into, but it will be something different and fun.”


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