Five months later, when not a single one of his 12 condos had sold, he decided it was time for drastic measures. He would break his long-held vow and follow his bank’s advice. He would try an auction.
“It’s not an easy decision,” said Mr. Foundos, the managing partner of FFS Realty of East Meadow, N.Y. “No one likes to roll the dice when you don’t know where they’ll go.”
Last weekend Mr. Foundos’s building, the Winfield, went on the block. The four units without a reserve price were sold. Opening bids started as low as $149,000, or 60 percent off the previous asking price.
“We needed a kick-start, and the auction provided that,” he said. “It was kind of what I expected — getting people through the building was good, and it got good exposure.”
With few sales, developers like Mr. Foundos, tired of seeing loan payments, taxes and maintenance costs consume the bottom line, are resorting to auctions, in a gamble that selling units at a discount now will be better than sitting on unsold property for another year. In some cases they are trying to sell a building’s last remaining units; in others, to prod moribund sales or introduce a property.
Since the housing downturn, condo auctions around the country have increased. But in New York City they have been rare; and in Manhattan, nearly nonexistent.
Brokers and lawyers, sensing that the time may be right for residential auctions in New York, have started auction companies, like BidOnTheCity.com and Paramount Realty USA, in the last two years. Established auctioneers, like Sheldon Good Company and Auction.com, have opened offices in Manhattan in expectation of a boom.
Yet, for all the interest, fewer than 10 live, in-person auctions have taken place in New York City since the housing bubble burst three years ago. Only about 75 units have changed hands in this way.
“What drives this business is a significant fall in housing prices,” said Ken Rivkin, an executive vice president of Auction.com, “and we have not had that in Manhattan.”
According to some predictions, the housing bust was going to create a wave of auctions across the country. But despite an uptick, auctions represent less than 2 percent of the overall residential real estate market nationwide. In 2008, the most recent year for which data are available, $17.1 billion in residential real estate sold at auction, or 1.4 percent of all homes sold, according to the National Auctioneers Association. That figure was $11.5 billion in 2003 and $16 billion in 2006.
The majority of homes put up for auction in New York are foreclosures sold in city courthouses or through Auction.com, formerly the Real Estate Disposition Corporation. Foreclosure auctions disposed of 6,621 apartments, single- and two-family homes last year in New York City, according to PropertyShark.com. (Most auction houses avoid foreclosed properties because they don’t want the accompanying hassles and uncertainty.)
In the past, developers and individual homeowners were loath to auction properties because of the air of desperation associated with the process. Most have been content to list their homes through a traditional brokerage or to wait for the market to recover. Auction houses report that they have come close to signing deals with developers, only to have them back out the minute they sell a few units.
“What it takes to be a good developer is to be a perpetual optimist,” said John J. Cuticelli Jr., the chief executive of the Sheldon Good Company auction house in Manhattan. “What he doesn’t realize when you have 100 to 150 units to consume, three or five isn’t a velocity of sales to sustain any business model. There’s this continual hope that the market will come back.”
Some developers have had problems selling condominiums because of new Federal Housing Administration rules. The agency will not insure a mortgage unless 30 percent of the units in the building have been sold. Banks, too, have tightened their financing demands and generally will not lend unless 30 to 50 percent of a building is sold.
“That’s a Catch-22 for a seller,” Scott Burman, a developer and a founder of Paramount USA, which auctioned the Winfield condos. “Buyers need mortgages, banks need contracts. Unless you can line up all-cash buyers, it’s very difficult to do.”
Because of the relative strength of the New York market, banks here have not been pushing developers to hold auctions as they have in other parts of the country. The average price for a Manhattan apartment is 22.7 percent less than in 2008, according to the real estate appraisal company Miller Samuel.
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