Latest condo auction feeds market unease

When the Quorum Center in downtown Raleigh announced an auction to sell its remaining 14 condominiums next month, it rattled an already jittery market.

Last fall one of the Quorum Center’s competitors, West, auctioned 32 units, a move that essentially froze sales in the market for several months.

“This second auction has really kind of traumatized the condo market again,” said Josh Lindenbaum, a vice president with The Halter Cos., an Atlanta firm that developed the 222 Glenwood condo project along with Trammell Crow Residential.

For projects such as 222 Glenwood, which has paid off its bank loan and is under no immediate pressure to reduce inventory, the auctions present a dilemma.

Ignoring the downward pressure the auctions are putting on condo prices isn’t really an option.

“We certainly understand that, and we’ve adjusted our prices in acknowledgement of what the new baseline is,” Lindenbaum said.

At the same time, 222 Glenwood isn’t prepared to slash prices to fire salelevels when it doesn’t have to.

“We’re just not going to give stuff away,” Lindenbaum said.

222 Glenwood has sold 90 of its 117 units, but the last recorded sale occurred in June.

Over the past six months, Lindenbaum said Halter has received a fair amount of low-ball offers that the company has declined to accept.

The project has equity investors who will eventually need to be paid back, but Lindenbaum said they are willing to wait to get prices close to what they forecast.

Highwoods Properties is in a similar situation with its remaining units at RBC Plaza on Fayetteville Street. It has no debt on the property, and can be patient.

The Raleigh real estate investment trust has sold 114 of the 139 units, but just eight since August, according to property records.

There are 233 condos listed for sale inside the Beltline this month, down 12 percent from the same period a year ago, Triangle Multiple Listings data show.

Although developers have been steadily reducing prices, the West auction last fall was the first real indication that prices might be bottoming out.

“There’s like a psychology to this whole thing,” said Ann-Cabell Baum Andersen of the Glenwood Agency, which represents individual condo buyers and also acts as the listing agent for West. “When the word auction comes up, people immediately think great deal. Investors come, but so do people who maybe had thought it was too expensive.”

Earlier auction’s effect

The West auction established a price point at which buyers were willing to pay – about 40 percent lower than earlier list prices.

West has since kept its prices near auction-level, and has sold nine units since the beginning of the year, according to property records.

The auction, in essence, removed much of the uncertainty about whether prices at West would fall further.

Of course, hosting an auction is both expensive for the developer and has downsides beyond reduced profit.

Auctions hurt the resale value for buyers who bought earlier and inevitably raise questions about the financial health of a project. They also can increase the number of renters living in the building, which may anger existing residents and turn off some prospective buyers.

The 15-story Quorum Center on Jones Street includes 37 units. The property was developed by Ted Reynolds and his son David. Ted Reynolds didn’t return a call seeking comment.

Advertisements for the March 20 auction have already become ubiquitous in the Triangle, and they’re prompting other projects to respond.

222 Glenwood is planning a marketing campaign that will emphasize the project’s strengths in light of the auctions. While patience may not be mentioned, it’s clearly a luxury in this market.

“At some point the demand curve will begin to turn back in favor of developers and owners just because there’s not going to be much new product available,” Lindenbaum said.