As numbers flew out of the auctioneer’s mouth, his assistants combed through the aisles of bidders saying, “Outstanding prices. You’ll never find a deal like this. Do yourself a favor and bid!”
One bidder, who sat stone-faced with his arms crossed, paused contemplatively and then raised his bidding number. “No one else? Sold!” the auctioneer shouted.
On Sept. 25, about 50 people showed up to the 1200 block of Holly Street for the auction of six high-end condominiums that have been on the market for the past two years.
Jeff Schultz, 33, pulled up to the auction while it was in progress and quickly asked a few bystanders what they were going for. He said he came to the auction because he had recently come into some family money and was exploring real estate investment opportunities.
“When I heard about this, I thought it was a really cool idea,” he said. “I had never really heard of anything like this before and I thought it could present some opportunities for someone looking for a long-term investment,” he said.
As the condominium market continues to languish in Whatcom County, short sale real estate auctions, which are not foreclosure auctions, are growing in popularity locally and in the western United States as a way to get buyers off the fence and into a new home.
Worse than the ‘worst-case’ scenario
The market has been particularly difficult for those who built their projects before the economy began to take a dive.
Kelly Beerman, owner and developer of the six Holly Street condos up for auction, said in late 2006 he began negotiations with two property owners to acquire 1203 and 1209 Holly St., so he could develop the lots into a mixed-use development with 12,000 square feet of commercial space below six high-end condominiums.
“I was excited. I was really jazzed,” Beerman said. “I think that simply the concept of having an integration of commercial and residential makes perfect sense.”
Beerman admits there are some downsides to his location near the corner of Holly and F Streets, but with the Old Town Urban Village Sub Area Plan in the works on one side and Bellingham’s proposed mixed-use waterfront on the other, Beerman sees only possibilities.
“I like the location. Old Town is probably the greatest redevelopment upside anywhere in Bellingham,” Beerman said.
Beerman also invested in top-of-the-line features for the approximately 1,600-square-foot condos, such as professional-quality appliances, soundproof windows and doors, and stone bathroom countertops that feature real fossilized seashells.
At the end of 2007, the condos were on the market for $790,000 to $870,000, depending on the unit. Around the same time, after a year of waiting, the project had its building permits and was in full swing. However, the beginnings of the recession were also underway.
“I knew that the economy was not only flattening, but going down. In the first quarter of 2008, we dropped the prices $80,000. There was no way I could keep following the market down that fast,” he said.
Beerman said he is just a small-time developer and if finance giants like Bear Stearns did not foresee the economic collapse, then how could he have seen it?
“I went through a complete financial analysis of best and worst case scenarios. Even in my worst case scenario, I did not foresee such an outcome,” he said.
A fresh concept
Over the past year, Lisa Guthrie, development director for Homestead Northwest, which bills itself as northwest Washington’s No. 1 homebuilder, said the high-end condominium market has been stagnant and right now development companies are looking to quickly shed high-end housing stock, which is best sold in the summer.
She said she began looking around at what other markets were doing and real estate auctions piqued her interest because of their capacity to garner new interest and urgency around the sale.
“Real estate is all about creating urgency,” Guthrie said. “The idea that ‘I have to get this house before someone else does.’ It’s not like with dog or cat food where you run out and then have to get more. With real estate, there is no built-in urgency factor.”
Since these non-foreclosure real estate auctions are a fresh concept in northwest Washington, Guthrie said they have generated a lot of interest.
“We feel that there are people who are ready and able to buy; they have just been waiting for the bottom so they can get the best deal,” Guthrie said. “With an auction, you make the deal. You set what the bottom of the market is. And for us it was effective.”
In two auctions over the summer, Homestead Northwest was able to sell four condos in one month. It had only sold two in the past year.
“It’s a success that we sold anything,” she said.
‘Stop the financial bleeding’
Beerman said he first considered an auction last February as he pondered a way to “stop the pain.” He said he liked the idea because it was something to advertise and a way to get people excited around a building that they have long seen for sale with a lowered price.
“An auction seems to me to be the most viable way to sell these quickly,” he said. “With an auction, it creates a sense of urgency. It says, ‘you tell me what you want to pay and that’s what it will be.’ So you are setting the market.”
Beerman said a bank has agreed to accept a short sale price on his building and while he may lose money in the sale, he may even out over the long term because he was able to sell the units all at once instead of holding onto them and steadily losing money.
“The biggest benefit is to stop the financial bleeding,” he said.
At the auction, the top-level units, which were originally tagged at $870,000 were going for between $275,000 and $350,000. The commercial space is still for lease, but Beerman said he is willing to discuss sale options.
Beerman doesn’t know if he will undertake a similar project in the future, but said building this project was a bittersweet experience that was a tangle of emotions both good and bad.
“Once that untangling begins, I will be able to see a little more clearly the directions I want to go,” he said.