The developers of a slow-moving, high-end condo conversion project in Dallas' tony Turtle Creek district are throwing in the towel -- and the bathroom and kitchen sinks as well as the linen closets. Centennial Real Estate has scheduled a May 20 auction for 15 units of its 34-unit Centrum complex, a 19-story mixed-use building that also includes office and retail space.
Five of the units, says auction house Sheldon Good & Co., will be sold "regardless of price" -- an indication that the sellers are more than eager to get out of the deal and not too concerned about what value the current Dallas market will place on this type of property.
Another 10 units will be sold with a buy-in likely between $250,000 and $500,000, depending on the unit size and location. A separate, sealed-bid auction will be held on May 15 for the sale of a super-luxurious, multi-terraced triplex penthouse at the top of the building.
Centennial -- which owns the property along with Chicago-based investment manager GEM Realty Capital, the main equity partner -- will hold on to the remaining units, hoping that a combination of good prices and a market buzz achieved at the auction will allow it to raise prices and quickly unload the last few condos. "They'll keep a few units in their back pocket," says Michael Fine, an executive vice president at Sheldon Good, which is conducting the sale.
In Pursuit of House Hunters
Part of the challenge -- and opportunity -- faced by the current owners lies in the building's history. The Centrum dates from the early 1980s, and although it was built as a condo development, its developers lost it to the Resolution Trust Corp.
The next owner maintained it as a rental, and the Centennial/GEM group acquired it in late 2005 with an eye toward capitalizing on the booming Texas oil market. They moved to return the building to its condo origins, but have been hampered by competition from the growing supply of new product.
To date, just eight units have been purchased, all by owner-occupiers, says Travis Mathews, a vice president at Briggs Freeman Real Estate, a Dallas agency that has been marketing the building and will continue to do so after the auction.
Condo auctions may be common in some areas of the country -- think coastal -- but they are a rarity in Dallas. "This is the first I know of for high-end residential," says Mathews. Not quite as rare but still a relative newcomer here: High-rise living, which arrived on the scene in the late 1990s but still has an uphill battle against the single-family home market.
Still, says Mathews, "high-rises are coming out of the ground as never before. It's always good to see cranes on the skyline, but there is a lot of inventory to go through. Sales have been sluggish."
Raising the Gavel
To counter the slow sales, Mathews says that Centrum's developers are holding an auction "instead of chopping prices and doing a fire sale." Comparable units in Dallas -- i.e., older conversions -- are selling at between $200 and $300 per square foot, he says, although some larger units may go in the $400 range. The numbers are higher for units in the snazzy, high-profile condos at the new W condo-hotel in Ross Perot Jr.'s Victory Park site, and are likely to be higher still at a planned Mandarin Oriental condo-hotel.
Sheldon Good executive Michael Fine notes that the auction, while "a bit anomalous for Dallas," is a reflection of the resurgence of the kind of "creative marketing for condos that is back in vogue again." As the fever pitch of the last decade that made sales seem easy has abated, Fine says marketers are returning to tools they had developed in the late 1980s and early 1990s following the savings and loan crash.
"It's been much more competitive in the last year," Fine says, and sellers are turning to auctions as a "tool that solves the pricing issue of real estate. Where it works really well is where it's difficult to predict what a property will sell for."
One difference between today's auctions and those of a decade and more ago: Those sellers, says Fine, were in part of a "financially unhealthy real estate community," whereas present-day sellers are "tremendously financially healthy." However, as sales slow down, such owners are less willing to endure the high carrying costs that loom over the long haul of waiting for a stronger market.
Offering units that carry no minimum bid is surely one way of quickly gauging the market appetite, says Fine. "The auction allows the market to set the price," he notes. For the seller taking what appears to be a dramatic risk on such limit-free sales, "it's a way to get credibility in the marketplace," he explains. "It shows they are a serious seller."
All that's needed, clearly, are serious buyers.
Peter Slatin publishes the independent real estate newsletter theslatinreport.com. He has written extensively about real estate and architecture for publications ranging from Barron's to The New York Times, and is on the editorial board of Real Estate Portfolio, published by the National Association of Real Estate Investment Trusts. He was the founder and editor of Grid, an award-winning real estate business magazine.