Miami Condo Auction a Big Disappointment
September 21, 2007 by Lucas Lechuga
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: