Condominium glut may build new industry

Atlanta’s condo glut has not only gained national attention, but it also may be creating a new local industry: new condo auctions.

With more units than can be sold in a sluggish economy, developers are looking for quick ways to shed the excess inventory, real estate professionals and watchers say.

That isn’t all bad if it brings empty units to life, said Jim Grissett, an adjunct professor at Emory’s Goizueta Business School.

“At the end of the day we’re going to end up with some fairly lively and vital neighborhoods as a result of this,” he said. “I’m not suggesting that is the way we want to accomplish that in the future, but it will contribute to the rebirth of living in intown Atlanta.”

The national spotlight is on Atlanta’s condo market because of the substantial surplus of intown units. Atlanta developers got ahead of themselves in a way that hasn’t been seen since the early ’90s, Grissett said.

“We overbuilt in the number of units and we overinvested, meaning we built a lot of units high in the cost-per-square-foot category,” he said. “And there aren’t many ways to correct that very quickly.”

The auction format may be the only thing that will work right now, suggested Andrew Gardner, vice president of condo operations for Atlanta-based developer Lane Co.

“If someone negotiates a $200,000 unit down to $175,000, the next person is going to want it for $160,000 and the next person is going to want it cheaper than that,” he said. “If you are desperate for sales you’re going to have to make the deal. And look at what that becomes, a ladder you can’t climb back up.”

Gardner said a seller can only benefit from such a deep discount when selling in bulk — say, 30 or 40 units. Lane Co. did just that earlier this year when it auctioned off more than 40 units in 90 minutes at the Element at Atlantic Station in Midtown.

The next high-profile auction, scheduled for May 16 and 17 at Aqua, a Tivoli development in Midtown, and The Cosmopolitan, a Kaplan project in Buckhead, aims to move nearly 60 units in two days.

As is typical for auctions of higher-end developments, the Aqua sale will be at the swanky W Hotel. Prospective buyers can sign up at a Web site for advance information. They can also see units on the block during a preview period in the weeks before the auction.

Bids at condo auctions often start one-third below the original listing price. At the Aqua auction, for instance, bidding for a one-bedroom, one-bath unit in the “Azure” floor plan starts at $179,000, vs. the last listing price of $389,900. Bids on a larger “Sapphire” unit start at $299,000, down from $759,900.

Because Atlanta has so many unsold units, the auction action is drawing enterprising business people.

Boston-based Accelerated Marketing Partners has done about a half-dozen auctions in metro Atlanta, and will handle those of Aqua and The Cosmopolitan. The business has been so good it is moving its operational base to the area, said Jon Gollinger, the firm’s East Coast chief executive.

“The reason is three-fold. Delta and Hartsfield makes it possible for us to get anywhere on the East Coast efficiently, the cost of living is great and the business is here,” he said.

Tom Hunter, auction manager for Sperry Van Ness/Interstate Auction, a California-based company with an Atlanta office, said he won’t be surprised when more real estate brokers, realtors and other business people start getting into the auction business.

“This recession is more residential than the situation we had in the 1990s,” he said. “But the remedy is the same: We’ve got to get rid of the excess inventory to recreate the demand, and auctions are a great way to do that.”

Selling any piece of property is essentially an auction, said Grissett, the Emory adjunct professor.

“When you list your house, that’s an auction of a sort, it’s just a one-on-one event. But what a mass auction does is changes the timing and emotion of a sale,” he said.

“It creates a focused marketing event, so you’re able to get 200-300 key players in the room in and something happens.”

Many in the real estate community say this is just the first wave of new construction auctions.

“Well, there’s a lot to sell,” said David F. Haddow, president of Haddow & Co., an Atlanta-based real estate consulting firm. “Let’s face it. And I think it will continue as long as it remains an effective tool.”

But buyers looking for a deal may not need to wait for an auction to find one, he said. Prices of intown condos are often slashed before the builder even thinks about going to auction. To sell at a 30 percent discount, which seemed unthinkable a year ago, is not so unusual, he said.

“They’re now thinking ‘If we can sell 40 of them in one day, it is worth it.’ “