Economic realities

Dean Cullum relays a bid for a unit at the Murano to his brother, Ken, the auctioneer. All units up for bid - 42 total - sold yesterday. Those in the real estate industry see that as a positive sign for the sector.
Dean Cullum relays a bid for a unit at the Murano to his brother, Ken, the auctioneer. All units up for bid - 42 total - sold yesterday. Those in the real estate industry see that as a positive sign for the sector.

Sold! Luxury condos go at deep discounts

Posted: June 28, 2009

With her heart racing, Peggy Seltzer, a nurse at Children's Hospital of Philadelphia, had her game face on at yesterday's auction of 40 luxury condos at the Murano.

As soon as the one-bedroom, one-bath unit appeared on two screens at the front, Seltzer's eyes lit up.

Auctioneer Ken Cullum started with a minimum bid of $275,000, or 59 percent of the unit's original listing price of $465,000.

Over the next minute inside the highly charged Westin Philadelphia ballroom, the price climbed: $300,000, $325,000, $350,000, $355,000.

Seltzer, 37, raised her paddle marked No. 652 again for $360,000.

"Do I hear $361,000?"

Almost shaking, Seltzer then heard the words: "Going once, going twice, going three times. Sold at $360,000 to No. 652!"

Such was the bidding frenzy yesterday among the 325 participants who came to lay claim to the ultimate status symbol of luxury Center City living. That prize comes with a swimming pool, fitness gym, 24-hour concierge, and more at the elliptical, 43-story glass tower at 21st and Market Streets.

All 40 Murano units were sold yesterday, as well as two more units, in a span of just under two hours - a clear signal that there is a demand for condos in Center City, albeit at much lower prices, according to experts.

The lowest winning bid was $335,000 - for a one-bedroom, one-bath unit - and the highest, for a two-bedroom, two-bath unit, was $796,000, according to Accelerated Marketing Partners, which auctioned the units on behalf of the developer, Thomas Properties Group Inc.

Close to $21 million worth of real estate was sold yesterday in one hour and 45 minutes, roughly at a 25 percent or more reduction of the last asking price for the units in the Murano brochure, according to Accelerated Marketing.

"I'm not surprised they sold for more than the original auction minimum bids, but I am surprised they all sold," said Wharton economist and Econsult vice president Kevin Gillen after the auction. "I am encouraged by that.

"We have a lot of unsold units here, and before our market hits bottom, we need to sell them off," he said. "This is a significant step toward that."

About 2,000 condos are currently for sale downtown, according to Trend Multiple Listing Service, Board of Revision of Taxes data, and the developers themselves.

Jon Gollinger, chief executive officer of Accelerated Marketing, said the auction once again proved who was king.

"This is a watershed event for the Philadelphia condo market, pure and simple," he said. "All people have to do is analyze this building in relation to what the consumers paid, and then really extrapolate from that to determine what their properties are worth in the eyes of the consumer. The consumer rules."

The auctioning of high-end condos at steep discounts has become a survival strategy nationally for struggling developers to prevent foreclosure or bankruptcy as their condo towers sit more than half empty.

Gollinger said he had held similar auctions in other stagnant condo markets, including Atlanta and Chicago. His firm has an auction in Boston today.

Experts say the Murano auction was indicative of how far and deep this recession has cut. The luxury sector in particular has been hammered.

According to the city's Department of Records, condo sales citywide declined 64 percent over the last year, while sales of high-end condos declined 24 percent. There were 712 condos sold in the city in the first quarter of 2008. Of those, 115 were priced at $500,000 and up. By comparison, there were 255 condo sales during the first quarter of this year. Of those, 87 were priced at $500,000 and up, with more than half of them occurring in the recently completed Residences at the Ritz.

Gollinger described the auction as "a very audacious and bold move" by the developer to address the current disequilibrium in the Center City condo marketplace.

"When you have a gap between what a seller wants and what a buyer wants to pay, you can fight it," he said, "or you can accept it and let the consumer determine the value of the property."

That is what Jill and Michael Williams, who flew in from St. Martin, did at yesterday's auction.

They bid on a one-bedroom, 1.5-bath unit originally listed for $780,000. The minimum bid for the 1,091-square-foot unit with a panoramic view of the Art Museum and the Schuylkill was $445,000. The Williamses put down the winning bid of $513,000, after losing out on three other units.

"We had some lines in the sand, and we had some units in mind," said Michael Williams, 50, who owns a gutter business. "But we set a price for each that we weren't going over."

Afterward, the couple, who also own a home in Galloway Township, N.J. that they are trying to sell, celebrated with two glasses of champagne in the closing room.

Seltzer, who is renting an apartment in the Art Museum area, was escorted to the room with her parents after her winning bid.

"I'm still shaking," said Seltzer, as she wrote out a check for $26,000 and handed a lending agent her $10,000 cashier's check - a requirement at yesterday's bidding. Combined, they made up the required 10 percent deposit for her $360,000 unit.

Many eyes were on the Murano auction yesterday.

"It's a great idea because the fact of the matter is, there's a ton of middle-market units, and they're not selling," said Tom Scannapieco, who is developing 1706 Rittenhouse, the most expensive condominium development in the city, where 31 units start at just under $4 million. "An auction will at least move the units, and the market will go on from there."

Scannapieco said he was particularly interested in yesterday's results because he owns a condominium tower at the Shore - the Bella in Atlantic City - that targets the same market as the Murano, and where sales have lagged this year.

The Murano auction could be the spark plug to the Philadelphia condo market, said real estate lawyer Gary Krimstock, who represents most of the luxury condominium buildings in Center City, including Society Hill Towers, the Philadelphian, Symphony House, and the Dorchester.

"I think this will certainly start interest by other developers in auction sales as a form of marketing in a difficult recession economy," said Krimstock, who specializes in condominium-association law. "It's a better alternative than the developer and the condo association running out of money and not being able to keep the electricity on."

Randall L. Scott, executive vice president of Thomas Properties Group - the Murano's owner - said that was the strategy behind yesterday's auction: to move a chunk of the 178 remaining unsold units fairly quickly.

"We are very pleased with the volume," he said. "Naturally, the product is worth more than what buyers think it's worth, but that's because of the disconnect in the market.

"Rather than carrying the units, paying the debt service, condo fees, and so forth, it became more efficient for us to pass those savings to buyers," he said. "We view the auction as a deciding event to allow us to understand where buyers value our product.

"The market spoke today."

Scott said the remaining 136 unsold units at the Murano would be priced based on what similar units went for yesterday. That pricing will start immediately, he said.

Gillen said the people who would likely be most upset are those that bought at the Murano recently.

"When that many units change hands at a significant discount, it sets the market," he said. "Recent buyers could see paper losses on their purchase of $100,000 or more. For many, that could be enough to put them upside-down on their purchase."

On the plus side, Gollinger said, there were now more owners in the Murano, who will be paying their condo fees to help operate and maintain the property.

"The most important thing is they have a building full of homeowners," said Gollinger, "and one which affords them a wonderful lifestyle."

That kind of lifestyle is what the Williamses bought into. They got their first peek of their $513,000 purchase yesterday.

"That view is magnificent," Jill Williams said.


Contact staff writer Suzette Parmley at 215-854-2594 or sparmley@phillynews.com.

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