One of the largest industrial condominium projects in Orange County is trying a new tact to drum up sales.
Newport Beach-based Master Develop-ment Corp. is planning to put seven of 48 condos at Santa Ana’s Las Palmas Business Park up for auction next month.
The company’s using an upstart commercial real estate online auction run by Marina del Rey-based AuctionPoint Inc. to sell the condos—which average about 2,500 square feet—during the week of Nov. 16.
For commercial properties, it’ll be the largest auction of its type seen so far in OC. A few similarly sized buildings in Irvine and Tustin were sold by AuctionPoint last month. Winning bids ended up in the $140 to $180 per square foot range, in line with market prices.
“We think this is the wave of the future. It’s a more transparent way for buyers and sellers to get a deal done,” said Bryan Bentrott, executive vice president for Master Development. “When people hear the word ‘auction,’ they hear ‘good deal.’”
Bentrott’s expecting his company’s condos to sell for $155 to $160 per square foot at the auction.
That’s about $100 per square foot less than what the developer was aiming for when it acquired the industrial property at what turned out to be the peak of the local commercial real estate market.
But it still should be high enough for the company to eke out a profit, according to Bentrott.
The developer paid about $130 per square foot for the site, which is on East McFadden Avenue and previously was known as Electric Farms for its proximity to a power station.
Master Development and investor Buchan-an Street Partners of Newport Beach closed on the park in late 2007, paying about $30.5 million for the site, which at the time totaled 11 buildings and 240,000 square feet.
The developer put another $4 million of upgrades into the property to get ready for individual sales.
Seeing the commercial real estate market tumble as it has since then “was not part of the business plan,” said Bentrott, whose company also is a big developer in Ontario and Corona.
The company’s sold five units to date, and has another three in escrow. Assuming the auctions deliver buyers, the 48-unit development will be about a third sold by the end of the year. Future auctions are likely, depending on the success of next month’s transactions.
Despite the slow pace of sales, the developer’s been able to break even by leasing out a majority of the unsold space at Las Palmas, Bentrott said.
“We’re not in a state of panic,” he said.
Other office and industrial condo developers haven’t been as fortunate. Irvine-based Bacchus Development, one of the more active builders of smaller buildings for sale in the Irvine Spectrum, filed for bankruptcy in September.
More than 40 of 90 buildings at Bacchus’ two Irvine Spectrum developments—the Jeffrey Office Park and Bacchus Signature Series—are unsold, according to court filings.
For the industrial market as a whole, the average asking sale prices ended the third quarter at about $144 per square foot, according to Newport Beach-based Voit Real Estate Services. That’s down about 13% from a year ago, and off more than 20% from the peak of the market, seen two years ago.
Sale prices will fall another 10% to 15% by early next year, Voit predicts.
Right now, any industrial sale taking place is “100% price-driven,” with many deals led by buyers taking advantage of favorable Small Business Administration loans, said Kurt Strasmann, managing director for Voit’s Anaheim Metro office.
Multiple acquirers who buy buildings for their own businesses “are stepping up at a specific price. They’re seeing great deals and great financing,” Strasmann said.
More auctioneers are helping to facilitate those deals.
Irvine-based Real Estate Disposition LLC, the country’s biggest auctioneer of foreclosed homes, also is looking to replicate that success in the commercial real estate market.
REDC said last month it had started working with Chicago-based brokerage Jones Lang LaSalle to auction off commercial property, as well as distressed and non-distressed loans.
It’ll get the buildings from owners, banks and servicers who are looking to quickly sell properties, according to the companies. Right now, they have about 30 properties up for bid. That includes two Anaheim area properties being listed for less than $400,000: an auto shop and a used car lot.
The main reason Master Developer went with the new AuctionPoint system is because it’s broker friendly, Bentrott said.
AuctionPoint collects a 1% commission on every deal, while buying and listing brokers can still split another 5% to 6% on the final price of the transaction.
Bentrott estimates that 80% of the potential buyers in an auction wouldn’t show up without a broker.
