Miami Condo Auction a Big Disappointment

September 21, 2007 by Lucas Lechuga

(The video that I shot of tonight’s auction is at the bottom of this post.)

The Platinum Condominium auction has come and passed. The big talk of the town packed the house with auction participants, brokers, reporters and spectators. If tonight was any indication of what lies ahead, then the Miami condo market is in for a rude awakening. Miami condo developers are in for a sleepless night if word about tonight’s auction reaches them before bedtime.

It was apparent from the first round of bidding that the developer of Platinum Condominium had high expectations and high prices in mind tonight. Many people realized that the rules of the auction were quickly changed once the first round of bidding was over. A HUGE mistake on the part of the developer, if you ask me. The auction house, or maybe the developer, decided to start the auction with Group B. A colossal mistake in itself, in my opinion. Group B was comprised of 2 bedroom + den/2 bath condos; the best batch of condos of the three groups. This should have been left for last. Anyone looking to bid on a one bedroom, and sit this round out, would be in a favorable position if the high bids on the units in group B came in low. That is exactly what happened.

The first round of bidding ended with a high bid of $295,000, considerably lower than the prices that people recently closed on condos through preconstruction contracts in 2004. The recent closing prices for 01 line units ranged from $422,000 to $515,000 while the 07 line units ranged from $407,000 to $555,000. The developer must have been shocked at the outcome of the first round. The likely choice for the highest bidder was to select either unit 2107 or 1201. However, the highest bidder was convinced to select an absolute unit since any other choice would not be approved by the developer immediately, if at all. That announcement wasn’t made publicly but sitting in the front row has its advantages. The bidder selected unit 1001.

The second round of bidding began and once again ended with a high bid of $295,000. The highest bidder also wanted one of the non-absolute units but was likewise steered towards an absolute unit. That bidder selected unit 1907. The same result occurred with the third highest bidder which amounted to $295,000 as well. That person selected $295,000.

The third round of bidding ended with the same result. The auctioneer made an announcement before proceeding with the fourth round of bidding. It was then publicly known that only absolute units would be auctioned at this time. The disappointment in the crowd was felt throughout the room. Two words seemed to form on the lips of people in attendance: “marketing ploy”. The crowd thinned-out thereafter.

The results of the first eight rounds of the auction are below:

  • 1st Round: Unit 1001 – $295,000
  • 2nd Round: Unit 1907 – $295,000
  • 3rd Round: Unit 1607 – $295,000
  • 4th Round: Unit 1602 – $200,000
  • 5th Round: Unit 1806 – $175,000
  • 6th Round: Loft-107 – $160,000
  • 7th Round: Unit 301 – $320,000
  • 8th Round: Unit 707 – $295,000

The 02 line had recent closings from preconstruction contracts that ranged from $235,000 to $345,000 while the 06 line ranged from $242,000 to $390,000. Two small lofts, equivalent to Loft-107, recently closed: one for $260,000 and the other for $267,500.

I think most still in attendance anticipated the auction to end after the 8th round. However, Group A was selected and another round of bidding began. It was quickly announced that the next unit chosen would also be absolute. Once again interest was restored by the crowd but failed to bring any noteworthy bids. The round ended with a high bid of $245,000. The highest bidder selected unit 1905, a 2 bedroom/2 bath condo.

The bidding commenced once again but it was announced that any high bids from thereon out would be subject to developer approval. Below you will find the results of the 9th through 16th rounds:

  • 9th Round: Unit 1905 – $245,000 (Absolute)
  • 10th Round: Unit 1705 – $230,000 (*)
  • 11th Round: Unit 2102 – $185,000 (*)
  • 12th Round: Unit 1201 – $300,000 (*)
  • 13th Round: Unit 1101 – $300,000 (*)
  • 14th Round: Unit 2107 – $265,000 (*)
  • 15th Round: Unit 2007 – $265,000 (*)
  • 16th Round: Unit 501 – $300,000 (*)

The asterisk (*) above indicates that those units were subject to approval from the developer. In other words, those weren’t officially sold.

9 condos sold tonight. 9 out of 20. Maybe a few others will sell once someone gives the developer a good kick in the noggin, but only 9 were officially approved tonight by the developer. I posted a poll along the side of my site a couple of nights ago to ask visitors how many condos they thought would get auctioned at tonight’s auction. The highest response was that all 20 of the units would get sold. What a huge disappointment.

The developer not only did a huge disservice to himself, but to the Miami condo market as well, by not allowing the condo auction to run its planned course. There were two stories that could have possibly emerged as a result of tonight’s event: (1) the auction was a tremendous success and confidence in the Miami condo market has been restored at a downwardly revised level, or (2) the auction was a disappointing failure and Miami condo developers should soon be seeing brown stains appear in their underpants. I can assure you that other Miami condo developers were keeping a close eye on tonight’s event. I think many of them saw the auction system as a last resort. But with their last resort being extinguished as a result of tonight’s disappointing outcome, what more can they count on?

The answer is simple, the banks. The Miami condo developers are not sitting alone in the condo glut that we are experiencing here in South Florida. The banks, and their shareholders, are ultimately the ones who will feel the brunt of the pain. If banks can’t rely on developers to utilize the auction system to successfully liquidate unsold or defaulted units then their only alternative is to take possession of the units that represent the portion of the building that has not closed. Ultimately, these properties will get sold for 50 cents on the dollar, or less, to large investment funds that can buy in blocks of $10M+.

My prediction is that the Miami condo market will have a holiday close-out sale in the winter months. It will “coincidentally” coincide with our peak-season when thousands of snow birds will flock to our tropical climes. More demand, but also extra inventory.

I am very curious to read what the reporters that attended tonight’s auction write about tonight’s event within the next couple of days. Will they have an optimistic perspective, a pessimistic take or an honest-to-goodness report like you’ve read here at the Miami Condo Investments Blog? We shall see.

The following video explains how the auction would work:

Kicking off the auction with Pool B:

Changing the rules and moving to Pool A:

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34 Comments on "Miami Condo Auction a Big Disappointment"


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Anonymous
Julian
9 years 9 days ago

Crazy – but Lucas $170 per square foot. That’s 2nd/3rd tier emerging markets price! I guess we should all do a present value of 2.5% property tax and add that to the quoted price per square foot to make it comparable.

Anonymous
dean
9 years 9 days ago

You’re coverage of Miami real estate is far superior to local tv, the herald, CNBC and any other blog out there. amazing work

Anonymous
Sbki
9 years 9 days ago

Was unit 301 really a 3/3 with2254 sq ft? Your ideas make sense, banks are going to feel the pain. I would rather see other developers do auctions to lower the bar. thanks for the update

Anonymous
Brian
9 years 9 days ago

Those people who closed a few months ago must feel just as bad as the developer. Their equity is wiped out and may actually be negative.

Anonymous
Jaime
9 years 9 days ago
The people that closed months ago are definitely negative. I don’t know what the developer will be thinking today, but if they reject the remaining offers they will still never get the price they want anytime in the foreseeable future. CBS 4 said having this supply costs him $5500 a day, and its true they have more than the 20 condos that went up initially for auction. What I think is clear now is the value of supply and demand, and if the market correction isn’t swift, then the honest realtors, mortgage brokers, title companies and appraisers will face an… Read more »
Anonymous
qt
9 years 9 days ago

SBKI, Unit 301 was a 3/3, but it had almost no view and the bedrooms could fit a twin, maybe a full bed. The balcony was directly over the valet and had no breeze unlike the other 01 units.

Anonymous
Jamie
9 years 9 days ago
Remind me, didn’t this auction have a buyer’s premium of 10%? So the prices quoted here are a tad low. Also, and please correct me, weren’t they decorator-ready; i.e., needing an extra $30K to install floors, moldings, paint, closets? This is a fantastic blog. I’m reading it as often as it updates. One question for the audience or Lucas: What happens if you get a great price on a condo that is massively owned by the developer, who then walks? I’ve been through this before but in Texas, and the answer there was that there was nobody to pay the… Read more »
Anonymous
9 years 8 days ago

Dean,

Thank you! I appreciate the feedback. I took a look at what the media had to say about last night’s auction and I was surprised to see that many of their facts were inaccurate, specifically the prices.

Anonymous
9 years 8 days ago

Brian,

The people who closed on their preconstruction contracts at Platinum Condominium definitely have negative equity. They won’t be able to refinance for at least 3 years.

Anonymous
9 years 8 days ago

Jamie,

You are correct. All of the units came “decorator-ready”.

The developer is planning to rent the remaining units. He will be responsible for paying the monthly maintenance fees on the units that he holds. If he were to walk, however, the bank in possession of the condos would be responsible for paying the back maintenance fees to bring them up-to-date if they want to pass a clear and marketable title. In some cases they might pass the cost to the next buyer but in the cases that I’ve seen lately the bank has paid them.

Anonymous
9 years 8 days ago

Lucas, which building do you expect to go on auction next? While I was surprised at the result of the auction and turn out of registered bidders, I still believe Platinum is not building to call home about. It does have many disadvantages such as being surrounded by lots which eventually will be developed and further obstructing views. While some of these buildings such as Quantum and 1800 Club have many more units, I believe they will be much better buildings and in much better locations. What do you think?

Anonymous
Jenny
9 years 8 days ago

Platinum also has many design flaws. The bedrooms are all very small and the layouts are not great. All of the 2 bedroom lines all had very little living room space and barely any room to put a couch. Plus, if the developer is so reluctant to sell these units at the current market price, these units will likely stay empty for awhile and who will be paying the HOA fees? Not a good sign for a brand new building

Anonymous
Jenny
9 years 8 days ago

Also, by my calculations, the auction house only made $81,400 as they only receive 4% from each sale. This is taken from the Buyer’s Premium and 3% goes to Kamany (seller’s broker) and 3% goes to buyer’s broker. My assumption is the auction house was not pleased with this outcome.

Lucas, do you know who paid for all the advertising?

Anonymous
perez
9 years 7 days ago

The developer has to pay the maintenance fees on the remaining ~30 units. If he doesn’t, the condo association can file a lien, foreclose on that lien. Is anyone aware of this actually happening, and what was the result?

Anonymous
9 years 7 days ago

Perez
If the developer hasn’t turned over the association yet to the owners, you can be assured that he wouldn’t file a lien against himself.

Anonymous
oscar
9 years 7 days ago

Lucas, I attended the auction and I heard that there was rumor that the homeowners that purchased from the developer at full price where going to be dispointed at seeing what the true value of their condos were. Therefore they would be upside down, so there was talk about possibly a law suit? Could be the reason why the developer did not accept the non-absoloutes offers?

Anonymous
Brian
9 years 7 days ago

Did the developer provide an operational budget at the meeting? Often, the association is operated on a razor thin budget while held by the developer. Upon turnover to the residents, they soon discover that dues must be raised. I’m sure the developer isn’t pumping in a huge surplus to reserves while this auction is going on….

Anonymous
Jamie
9 years 7 days ago
Oscar, with respect, I don’t understand your comment. Are you saying that buyers can sue the developers because the buyers paid too much? I’m probably missing something here. Perez, that is exactly the kind of information I am looking for – what happens when a >50% developer-owned condo blows up? This is the reason why I wouldn’t buy a condo in certain Miami buildings at almost any price. Especially the fraud-riddled ones. Those boards must approve the inflated transactions, knowing they are fake, and I sure hope their Directors & Officers insurance is paid up. Although maybe they have no… Read more »
Anonymous
9 years 7 days ago
Samir, I’m predicting that Opera Tower will be the next big development to auction their remaining condos. I think the developer is going to get back a lot of units as a result of people not closing on them. My guess is that around 25% of the units will default. I think Onyx on the Bay and Star Lofts will also have very high default rates. The prices at Star Lofts are simply ridiculous. I wouldn’t be surprised if over 50% of the building defaulted. It’s going to be a gorgeous building but nobody is going to pay over $600,000… Read more »
Anonymous
9 years 7 days ago

Jenny,

I’m guessing that the auction house paid for the advertising. Their profit was much smaller after all of their expenses are taken into account. Fortunately for them, however, they received a ton of free publicity by the media.

Anonymous
9 years 7 days ago

Oscar,

I saw the comment in the newspaper about the possibility of the current condo owners filing a lawsuit. I think it is ridiculous and that their chances of winning anything are slim-to-none. Nobody forced them to sign the purchase contract and certainly nobody forced them to close. They had the opportunity to walk away from their 20% deposit as well.

Anonymous
9 years 7 days ago
Jamie, If the developer of a building goes bankrupt and walks away from the remaining units then the maintenance fees of those units will not be paid. The bank will then own the remaining units. I’m not sure whether or not the bank is required to pay the monthly maintenance fees. Anybody have an answer? My guess is that they don’t have to pay the monthly maintenance but the investment group who buys those units at a discount from the bank will be required to get caught up on the back maintenance dues. Within 6 months I think we’ll read… Read more »
Anonymous
9 years 7 days ago
I just checked to see how many closings there are so far at Star Lofts on the Bay. There are a total of 18 closings thus far. The building has a total of 48 residences. Closings started at the beginning of July and the last closing was recorded on August 14, 2007. That means in over a month there haven’t been any additional closings. Additionally, there are currently 14 units listed for sale on the MLS. Does that mean that 14 of the 18 condo owners that did close on their units at Star Lofts are looking to sell? Wow!… Read more »
Anonymous
9 years 6 days ago
Lucas, We are in an amazing market. It surprises me every day. I agree with you about Opera Tower, I think there is major trouble there. Too bad the investors are handcuffed by the developer on what they can sell the units for. I think 2 Midtown has closer to 330 units. I noticed recently that only 1 unit has be marked as a resale in the MLS in the Midrise portion of the building. I have a client who owns one of those midrise units which I think may be in a better position to see in the future… Read more »
Anonymous
perez
9 years 6 days ago

I think once the developer owns

Anonymous
9 years 6 days ago

Can someone educate people like me differences betwee absolute -nonabsolte auctions and other terms and conditions that are typically involved. What traps to avoid and what to look for?

Thanks.

Anonymous
salk1
9 years 6 days ago

Heard 40% of units in Jade are for sale.

Anonymous
9 years 5 days ago

24% of the units in Jade are available for sale in the MLS. I highly doubt that FSBOs represent another 16%.

Anonymous

[…] Today, I finally had a chance to edit, render and upload the video that I shot of the Platinum Condominium auction last Thursday. I split it up into three separate video files which highlight key points of the auction. You can read my analysis of the auction here. […]

Anonymous
9 years 2 days ago

Lucas: Congratulations! This is a brilliant blog. Thanks to critical miami I found it. With 24K units on the market and 24K more about to be finished in the Brickell-Downtown area, I think these guys were insane to hold an auction.

Anonymous
perez
8 years 10 months ago

Evidently, only 4 of the units have closed, I wonder if the other auction winners had trouble qualifying or lost their deposits. The closing so far are for:

Unit 1001 – $324,500
L107 $176,000
2001 $610,000 (this wasn’t auctioned)
1602 $220,000
1907 $324,500

Anonymous
8 years 10 months ago

Perez,
I’ve heard from multiple sources that the developer required high bidders to close within 10 days. There was a small clause within the contract that allowed him to do so. In multiple places it said on the contract that the bidder would have 30 days to close. I’m sure most of these people were shocked to find out that they would only have 10 days instead.

Anonymous
ana
8 years 10 months ago

hola me gustaria saber los precios y las ofertas para comprar de inmediato un departamento, ana

Anonymous
Rosemary
8 years 6 months ago

Please put me on the “auction list”… I want to buy.

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