Condo developer turns to auction to sell Utah units
At the height of the real estate boom, the condo market in downtown Salt Lake City was hot so hot that developers rushed in to build dozens of new projects.
But after the residential sector along the Wasatch Front took a turn for the worse in summer 2007, condo sales plummeted. Most projects in development were canceled. Many under construction during the housing bust have remained in limbo for years.
Illustrating just how dramatically things have turned, on Nov. 5 two of those projects will hit the auction block. Kennedy Wilson Auction Group, based in Beverly Hills, Calif., will try to sell 35 condos at Broadway Park Lofts, 360 W. Broadway in downtown Salt Lake City, and two at the high-end Maple Heights development near downtown at 678 H St.
The projects were developed by Salt Lake City architect Ken Millo, a real estate developer and restaurateur. Starting bids on the 35 one- and two-bedroom loft condominiums at Broadway Park Lofts range from $55,000 to $140,000 on units originally priced at $149,900 to $349,900. Starting bids on the two Maple Heights units are $700,000 and $750,000 on units originally priced at $2.1 million to $2.4 million.
"The goal is get as many of these units [as possible] sold in one day," said Rhett Winchell, president of KW Auction Group.
Whether that will actually happen and just how good the deals will be remains to be seen. The Nov. 5 event is not an absolute auction in which the highest bid regardless of amount is accepted.
Although bidding on units starts as low as $55,000, Millo's Urban Associates and Allen Millo Associates are under no obligation to accept starting bids. The seller has an undisclosed reserve price on each unit and can reject any offer that doesn't reach that threshold.
Many real estate professionals say the prices will have to be spectacular for buyers to act. Although the popularity of condos soared during the real estate boom of the early to mid-2000s, the market for these living units has suffered greatly during the downturn.
Other developers with better timing were spared the tough task of trying to sell condos during one of the worst downturns since the Great Depression. Salt Lake City businessman Rick Howa hadn't yet started construction on 90 higher-end condominiums and townhomes he planned to build near downtown Salt Lake City when the downturn began. That project was canceled. Also put on ice were the condos developer Craig Mecham planned to build in the Sugar House area of Salt Lake City.
Millo was able to cancel a 108-unit condo development called Metro Park West at 341 S. 400 West. But he was already committed to building Broadway Park Lofts and Maple Heights when the downturn began.
Millo, who also owns Cucina Nassi restaurant on Highland Drive in Salt Lake City, developed the Firestone TireTown condo project at 308 W. Broadway in the late 1990s and the Uffens Marketplace condos, 336 W. Broadway, in 2004. Uffens Markplace "turned out to be such a great project for us," Millo said, noting it sold out in less than one year.
Broadway Park Lofts, though, has been a victim of the real estate bubble in more ways than one. Millo said it took nearly two years to get Federal Housing Administration approval for the development an OK that didn't come through until mid-January of this year. The designation is a necessity in today's market, one that enables buyers to take out loans insured by the federal government.
During the boom years, FHA loans represented only a small share of mortgages. Today, in an era of tighter lending standards put in place by lenders to reduce losses, FHA is virtually the only game in town for many borrowers who don't have at least a 20 percent down payment.
"If you can't offer FHA financing, it can be really devastating," said DeAnna Dipo, president of the Salt Lake Board of Realtors. She said no less than 95 percent of the buyers she has worked with this year have purchased homes and condos with FHA loans because of the lower down payments.
Another problem has been demand. Millo said he once had 200 potential buyers reserve units in Broadway Park Lofts and even some buyers under contract. But since last summer when the first phase was completed, not one of the 35 condos in that phase has been sold even after January when the project was granted FHA approval. (The 51-unit phase two of Broadway Park has not been built.)
But little in this project is simple or uncomplicated, including the financing.
The lender that provided the construction loan to build Broadway Park Lofts failed earlier this year and was acquired by U.S. Bank, which had written down the value of many of the smaller bank's real estate loans. In a deal that should help the financing end of the project, Millo said he was able to acquire his own construction loan for much less than he originally owed.
But Millo still needs to get people to buy condos. And he still needs to finish phase two an empty shell that isn't exactly helping potential buyers feel comfortable about buying in phase one. As part of that effort, Salt Lake City recently agreed to lend $3 million to the project, which is supposed to be repaid with the proceeds from the Nov. 5 auction of phase one.
To expand the number of potential buyers, KW Auction Group is trying to make the process as user-friendly as possible, said Winchell.
He estimates that at events in other markets 60 percent to 70 percent of buyers have never participated in an auction. "We want them to feel comfortable," he said, by making the auction process fairly simple and non-intimidating.
But potential buyers may want to proceed cautiously, said veteran downtown real estate agent Babs De Lay.
She underscored the fact that the advertised prices are only starting bids. "Just because bidding starts at $55,000 it doesn't mean they'll actually sell them for that amount."
De Lay said she is skeptical that so many condos could go under contract in one auction given the weakness of the condo market. In the area of 200 West to 500 East and South Temple to 400 South, for example, she said sales have been slow.
"Only three condo units went under contract in the immediate area in the last three months. So my question is how is he going to sell 35 condos in one day?"
P An auction for 35 loft-style condominiums and two luxury condominiums at separate projects in downtown Salt Lake City is scheduled for 1 p.m. Nov. 5. at the Cucina Nassi Banquets and Special Events Center, 2155 S. Highland Drive. Registered bidders may attend a free "How to Buy at Auction" seminar at 1 p.m. Saturday, Oct. 29. The seminar, at the Broadway Park Lofts Auction Information Office, 360 W. Broadway, Unit 233, includes a live practice event. Bidders must register for the Nov. 5 auction by Thursday, Nov. 3.
For more information • SLCcondoauction.com Q&A Condo auction
How can I bid on a property?
You must have financing and a cashier's check for a $2,000 deposit to bid on a unit at Broadway Park Lofts and $10,000 to bid on a unit at Maple Heights. This amount is refundable if you are not the winning bidder.
How good are the deals?
It depends. Starting bids on the 35 one- and two-bedroom loft condominiums at Broadway Park Lofts range from $55,000 to $140,000 on units originally valued at $149,900 to $349,900. Starting bids on the two Maple Heights units are $700,000 and $750,000 on units originally valued at $2.1 million to $2.4 million. These are only starting bids, however. The seller has an undisclosed reserve price on each unit and can reject any bid that doesn't reach that threshold.
What else do I need to know?
Successful bidders must pay a 5 percent buyer's premium (say, $10,000 on a $200,000 bid). Buyers are responsible for closing costs. Properties are sold on an "as-is" basis.