CHICAGO, IL - When Roszak/ADC began marketing Vetro, a 31-story condo development in the South Loop, the marketing materials talked of the architecture, the floor-to-ceiling windows and the fitness center. That was in 2006. Next month, it all will boil down to price.
In a decision made with the blessing of its lenders, Roszak/ADC will auction 40 of 100 unsold units in the 233-unit building on March 7. It's a money-losing move, but not one of total desperation. In addition to jump-starting sales, the goal of the auction is to determine how much the condos would be worth if sold conventionally.
It's not the first auction by a local developer willing to take some lumps and move on, and it's unlikely to be the last. Faced with impatient lenders, skittish consumers and unsold inventory, developers are starting to dispose of properties by any means possible.
First came incentives, sweepstakes and price discounts, which worked to varying levels of success. Now, auctions.
"We're talking to a ton of developers," said Chicago-based auctioneer Rick Levin. "Some have 10 properties and some have hundreds. Many developers owe more than their property is worth."
In a housing environment where buyers wonder whether prices have hit rock-bottom, auctions let bidders set the market price. The events also let potential buyers see how much competition they have, rather than wondering if they are the first customer to stumble into a developer's sales office during the past six months.
In December, 44 condos at McKinley Park Lofts and 22 townhouses and condos at Jazz on the Boulevard were auctioned. Originally, only 34 condos at McKinley Park, developed by an affiliate of The Habitat Co., were included in the auction, but 10 were added because of demand.
A similar strategy will be employed at a March 1 auction of townhouses at the Courtyards of Brookfield. Originally priced to $364,000, at least four units at the west suburban property will be sold for a minimum of $189,000. An additional seven units could be auctioned if developer Lily May Development LLC decides there's potential interest.
"We are now in a cycle where the developers are having difficulty determining where to price their property and buyers are concerned that they're operating in a vacuum, that they're the only ones making an offer," said Michael Fine, executive vice president of Sheldon Good & Co., which is handling the Brookfield sites.
Vetro developer Thomas Roszak, who said the units auctioned will be sold at a loss, hopes to relaunch the building and sell the remaining units conventionally after he gets a sense of their value from the auction. "Maybe I'll make up some of the money on the other 60," he said.
A one-bedroom unit at Vetro that was at $226,000 carries a minimum bid of $150,000. Bidding for a penthouse unit, once marketed at $900,000, will start at $415,000. One parking space is included with each unit.
"It's something we have to do, want to do," Roszak said. "If a developer can traverse these waters and bring it down to a soft landing and help the banks make their money and our equity people make their money, it's a success story in this kind of financial situation."
Such a deal could be considered a slap to the building's residents, who paid much more for their units, so Roszak plans face-to-face meetings with them before the auction. However, he noted, "The reality is, today, whether we have an auction or not, their unit is worth less."
Accelerated Marketing Partners, which is handling the Vetro auction, conducted 50 residential auctions last year, up from a handful in 2007. This year is expected to be equally strong. "This is vast becoming, nationally, a bank's decision," said Jon Gollinger, co-founder and chief executive of East Coast operations.
Source: ChicagoTribune.com