At Brooklyn’s First Luxury Condo Auction, Agent Advises ‘Buyer Beware’

The crowd was antsy.

Many had waited in line nearly an hour, with some unable to find seats and forced to stand. Someone addressed the crowd, while another encouraged everyone to cheer louder. In the far rear corner of the room, a live band anticipated its cue.

What sounds like a punk show in Williamsburg was actually an auction for The Locale, TreeTop Development’s 16-unit luxury residence at 269 Kingsland Avenue. The building, with its now-standard sleek glass facade, is sandwiched between McGolrick Park and Newtown Creek in Greenpoint.  Hailed as the first of its kind in Brooklyn, the event was the latest in a growing trend of luxury condos being auctioned off to spur buyer interest in a bleak economy and to meet developers’ financial goals.

Recent ones have happened in Boston, New Jersey, Georgia and Chicago. Another will take place in the Bronx later this month.

At the New York Marriott at the Brooklyn Bridge last week, more than 250 prospective buyers and spectators filled the ballroom, most of them at a live auction for the first time.

The original price for the units, all one-bedrooms of varying sizes, ranged from $445,000 to $599,000. Four units went to the highest bids, with a duplex featuring a private patio and yard as the biggest sale. At $387,500, the buyer saved 30 percent.

“I think it accomplished really exactly what the developers were seeking to do,” said Jeff Hubbard, senior managing director of the real estate auction firm Sheldon Good & Company, which arranged the event. “The auction procedure is very good at helping determine the value for both the buyers and the developers.”

Sheldon Good & Company has been in the auctioning business for more than 40 years, but Hubbard says developers are now using their services in every aspect of the sales and marketing processing.

“There’s no question in my mind I know we’re going to be doing additional auctions here in New York,” Hubbard said. “It’s truly a win-win for both the developers as well as for the buyer.”

“From the developer’s perspective, they get to move large blocks of inventory at one time and save on the cost of carry, mortgage, taxes,” he said.

Carla Briscoe, one of several real estate agents who went to the event, said she would consider sending her clients to future auctions.

“From the developer’s standpoint, it’s very smart tactically,” she said. “It creates competition and urgency.”

One real estate developer, who wished to remain anonymous, said the auctions were great for the market because they will reset the prices, creating a clearance effect.

“It will set the very bottom of the market at this time,” he said.

“Four will be sold absolute, REGARDLESS OF PRICE!” proclaimed the signs.

As the bidding commenced, buyers could see what they were bidding on by looking at two large projectors on both sides of the room. The screens were divided into two columns: the pool of units and what was sold. Four Rs marked the fourth-floor units, meaning they were on reserve and the seller could accept or turn down the highest bids within three days. The bidder would then be notified at the auction or via mail afterward, though the seller could choose not to respond.

With views of the Manhattan skyline and private rooftop access, these units were the most expensive, originally ranging from $575,000 to $599,000.

A bidder offered $312,000 for 4D, a 726-square-foot unit with a storage room and a private rooftop deck. With the 10-percent buyer’s premium, its total price came to $343,200. Afterward, the seller pulled the rest of the fourth-floor units from the auction, well within what was outlined on a FAQ sheet provided at the open house.

One prospective buyer, who asked to remain anonymous because of a pending offer he made, said he had been eyeing the fourth-floor units and never had the chance to bid.

“It seems like they changed the rules midstream,” he said. “You don’t set the conditions and then change the rules when you’ve attracted all the people.”

The buyer previously attended an auction in New Jersey, where he lives, and had hoped to save money by foregoing the traditional route. Greenpoint, he said, seemed ideal because it’s an “artsy fartsy place.” He was considering buying a unit in Brooklyn to live in temporarily or to keep as an investment.

Though he was still waiting for a response from Sheldon Good, he expressed having second thoughts about the condo. He had left the open house thinking the cabinetry and the finishing were standard, despite the upscale appliances.

“I don’t think they’re worth that much, especially in the current market,” he said. “The more I talk to people and brokers, the more grim the market seems. I think they thought the auction was a good way to generate hype and momentum for their property.”

Nowhere is skepticism toward auctions more visible than on the blogosphere.

A short item on Brownstoner announcing the auction drew 17 comments, many of them negative. Readers questioned developers’ motives and whether shoddy construction led to the auction. Some even suggested The Locale was built over the site of the Greenpoint oil spill at the industrial waterfront that is Newtown Creek. Found in 1978, the environmental advocacy group Riverkeeper estimates the spill at 17 million gallons, which have spread to 55 acres of the neighborhood. The Brooklyn Eagle reported in September that the site has been added to the National Priorities List of Superfund sites.

In an e-mail, the New York State Division of Environmental Remediation, which oversees the state Superfund program, said The Locale is “outside of the limits” of the site.

Roughly 30 minutes after the auction began, the fourth unit was sold to the highest bidder. The band broke into their rendition of Chuck Berry’s “Johnny B. Goode.” Like others before them, the highest bidders walked to tables in front of the room to look over paperwork before being ushered to a private area.

Then, the auction was over.

“They accomplished what they wanted to do,” Hubbard said of the sellers. Additional offers and negotiations were happening behind closed doors. A bid on a fifth unit was accepted in the days after the auction ended.

“We are very pleased with the results of the Locale auction,” said Adam Mermelstein, General Partner of TreeTop Development, in the post-auction press release. “It achieved two of our goals, one was making the offering plan for the Locale effective, since we succeeded in selling the requisite number of units to begin conventional sales and secondly, focusing buyers on this property.“

However, some prospective buyers, like Queens resident Amy Lee, had hoped the units would sell at close to the opening bids of $150,000 to $175,000.

“I wanted to buy it if the price was right,” she said after the auction. “It was out of range.”

Whether this auction sets the tone for others remains to be seen. By the large turnout of buyers, real estate developers and PR reps from other real estate firms, it’s clear they are generating interest.

Real estate agent Briscoe said those who successfully won units got a good deal. Still, she plans to approach future auctions with caution.

“Buyer beware,” Briscoe said. “Always buyer beware.”

A sampling of auctions that have occurred in the past year:

Boston

The Bryant: In October, 10 luxury condos were auctioned off for up to 41 percent of their list price. Originally listed from $1.7 million to $2.2 million and sold in the $1.3 million range. The building offers 50 two- or three-bedrooms in a 10-story brick building.

Source: Boston Herald

Chicago

Vetro: In March, 45 units were auctioned off, with bids ranging from $145,000 to $429,000, roughly $50,000 to $100,000 less than original price.

Source: Medill Reports

Jersey City, NJ

The Beacon: In June, 25 one- and two-bedroom units were auctioned off. Originally listed from $380,000 to $700,000, the starting bids ranged from $150,000 to $250,000.

Source: The New York Times

Savannah, Georgia

News Place: In October, 16 units went: 15 two-bedrooms ranging from $330,000 to $390,000. Originally listed from $629,900 to $759,900. Three-bedroom penthouse, listed for $2.2 million, for $825,000.

Source: Savannah Morning News

(Images provided by Rubenstein Associates)

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