A lot of people are probably still trying figure out why yesterday's auction for Hancock Lofts, held at the Beverly Wilshire Hotel, was such a letdown. The crowd was small, bidding quiet, and the energy relatively low. And like last week's 655 Hope auction, there wasn't enough of an audience to offer all the advertised units--Kennedy Wilson only auctioned off 10 units, rather than the expected 14. But unlike 655 Hope, many people had high expectations for this auction, which was expected to fetch bids in the $600,000s and $700,000s, and pack in a large crowd of wealthy West Hollywood residents. Instead, the auction was a slow fizzle for developer CIM Group. A spurt of energy kicked off the event, but the last unit went for $446,000, just above its starting bid of $425,000. “The guy who got it looked confused that no one else was bidding,” said Gerry Moylan, a Keller Williams real estate agent, who attended the event. “And then it wasn't clear if he was happy or not he'd won.”
So what the heck happened? Depends who you ask. You'll hear complaints about the real estate market, the auction process, or lenders who've tightened financing requirements. Moylan blames all of the above.
“The market isn’t ready for these kind of prices for condos right now,” says the agent, who believes even those with money aren’t willing to plunk down $700,000. “There’s a spot around $400,000-$500,000 right now that they’ll pay. They like the new condo look, but they aren’t willing to pay [more] for it.”
He also suspects that some buyers are suspicious of the type of auction process seen at Hancock Lofts, where the auctioneer can bid up the prices on behalf of the developer, as long as the process is disclosed (and the auctioneer did bid up the prices yesterday, according to numerous sources). "People are scared of auctions," he said. "People are scared of short sales, people are scared of bank-owned." Others wonder if perhaps buyers stayed away because they expected large crowds, and believed prices would be bid up past what they could afford.
Still, many buyers who did purchase seemed pleased. John A. Smith, a former union negotiator, believes he got a good deal on his purchase of a 1,217 square foot unit two-bedroom, two bath for $618,000, a unit that had a starting bid of 495,000—and was originally priced at $1,089,500.
Whether or not Smith, as well as the other 9 buyers, gets that price will be up to CIM Group, which has the right to negotiate and counter-offer all bids.
Following the 655 Hope auction, developer SECK has been counter-offering bids for the last week. Downtown real estate agent Roxanna Godinez’s client got a two-bedroom for $420,000, but SECK came back, asking the client to pay $486,0000 instead. Believing $420,000 is market rate, Godinez advised her client to stick to his original bid, and they’re waiting to see if SECK accepts that number. Likewise, Scott Fellmeth, who was featured in our 655 Hope story, says SECK asked him to pay 20 percent more on his $423,000 bid price. "I obviously did not accept their offer," he writes in an email.
In general, Godinez believes developers are taking a risk when opening buildings via an auction in this market. “When you have an auction, you’re setting the price for the building. But you can’t do an auction to test the market? you can’t go back and forth with buyers after the auction, that creates a bad image for the developer," she says. "These buyers are smart.”
Barry Meyer, Vice-President, Kennedy Wilson Group, agrees the crowd seen yesterday at Hancock Lofts was smaller, but also points out the auction did get $600 a square foot for one unit, compared to the Elements auction, which saw units go for an average of $415 a square foot. "It's new territory," he said, of the type of luxury building that's now being offered up via auction. And he believes there are buyers that did get deals. “I still think people perceive there’s value in these condos,” he said.