A “Sacrifice Sale” In Florida
The Herald Tribune reports from Florida. “A downtown Sarasota property once slated to become a luxury condominium sold Thursday for $555,000 at a no-reserve, open-air auction. That price was nearly $200,000 less than the developer paid two years ago for the same piece of dirt and probably half what the land might have commanded during the peak of the real estate boom.”
“‘Sounds like he was operating on the greater fool theory,’ said Peter Magnuson, a Sarasota real estate investor, of the property’s owner. ‘It may be a ridiculous price, but somebody else will pay a more ridiculous price later.’”
“‘Thirty-five thousand vehicles per day drive by here,’ said auctioneer Michael Peters, attempting to squeeze a few more thousand out of the 20 or so people sitting in folding chairs under a white canopy tent. He then pointed out that the land was officially valued at more than $700,000 by the Sarasota County Property Appraiser.”
“But it didn’t work. The sacrifice sale is the latest indication of a real estate market that has gone into a severe correction after a boom that started in 2002 and pushed prices to sweeping highs by early 2005.”
“‘Clearly, there are a number of planned projects that are behind schedule, and some that people have dropped out of,’ said John Harshman, a Sarasota commercial real estate agent and downtown expert.”
“By buying the vacant Sarasota land in November 2004, the buyer paid nearly the most he could have, said Marvin Rose, a residential real estate consultant. ‘That was just about the peak of the Sarasota market,’ Rose said. ‘Sarasota came down in early ‘05, or started to come down.’”
“The average price of a condo in the Sarasota MLS acted like a roller coaster in the past couple of years. From $414,200 in August 2004, the price hit $526,000 in August 2005, before descending back down to $436,000 in August.”
“The auction price on the property worked out to a current downtown bargain of $71 per square foot. ‘Probably $100 a square foot is what people have been pegging in on downtown properties,’ said Joe Hembree, a Sarasota commercial real estate agent.”
“The property was likely the first piece of prime downtown Sarasota land to be sold through an open auction during this real estate cycle, Harshman said.”
“The event was advertised as an ‘absolute auction.’ That means that no matter how low the bid was, the buyer would be obligated to accept it, said Peters, the auctioneer. ‘That’s what an auction is all about.’”
The Orlando Sentinel updated this report:
‘Beazer CEO Ian McCarthy said that the company has taken steps to reduce overhead and capital spending as the company prepares for fewer closings in fiscal 2007. In September and October alone, the company pared about 1,000 jobs, or 25 percent of its work force, to brace for less work in the coming year.’
Does this imply that Beazer’s stock price is going to rally?
“In Tuesday’s report, Beazer reported a profit of $91.9 million, or $2.19 a share, for the quarter ended Sept. 30, down from $164.4 million, or $3.61, in fiscal 2005’s fourth quarter. Revenue rose to $1.88 billion, up from $1.81 billion. Closings also rose to 6,411 homes, up from 6,339 a year ago.”
Given the parities in quarterly revenues and unit sales together with the drop in EPS, one can easily conclude either incentives or costs incereased or a combination of both. Of course, careful analysis of Beazer’s financials should reveal the details.
How can you do careful analysis of companies that have hidden the bodies?
Sarbanes-Oxley, why risk the loot after selling at the top?
Link: http://tinyurl.com/da9pe
“For the year, Beazer posted a record profit of $388.8 million, or $8.89 a share, up from $262.5 million, or $5.87 a share, on revenue of $5.46 billion, up from $5 billion. Home closings rose to 18,669 from 18,146. The company is forecasting only 12,000 to 13,500 closings during the coming fiscal year.”
So, looking back over the year Beazer did extremely well as reflected in annual EPS.
However, judging from this quarter’s results and future unit closings projections, the future looks less profitable. In fact, much less profitable when incentives, write-downs, land option adjustments, and lower sales volume are considered. Although land prices and unit costs are expected to fall, these savings certainly cannot bridge the earnings gap outlined above.
‘Thirty-five thousand vehicles per day drive by here.”
Too bad they didn’t build the condo. Sounds like a great place to live.
Sounds like a great place for a gas station or a MacDonald’s franchise.
Spot on with the McD’s forumula. Part of the overall criteria for considering a location is a minimum of 26k daily vehicle count. I don’t know the specifics of that parcel of property but a McD’s wants about 42k sq ft and pays in the neighborhood of 400k for the dirt.
bk has a way better plan…. wait for a MD and put a store accross the street.
BK’s plan is “better”? Obviously you see the signs but know nothing about the process……
McD buys a location
BK goes in next door at prices 35-50% greater
While McD’s sales go to the bottom line, BK serves debt. BTW, BK does NOT purchase property, the franchisee is responsible for picking up the tab. The only locations owned by BK are those they have taken over from failing franchisees…..and there are LOTS of them across the country.
So Mickey D pays $10/sf for 42,000 sf. This POS parcel was 7,408 sf and sold for $71/sf. McD can not afford this land. Only some GF lookking to build high rise condos can make sense of this price.
I am pretty sure that it is the piece located downtown right near the marina and on the road that leads to the Ringling bridge. Close to the Ritz Carlton, which also has a ton of condos. Yes there is huge traffic there. They tore down a beat up motel and then had a sales office there for about a year. I was suprised that it sat so long. There we so many other condos thrown up in that area during that time. Downtown is flooded with over priced downtown living condos. The people in Sarasota fancy themselves quite an artsy group. The land did seem small for the big hi-rise that they were going to put on it.
You are right. In Sarasota regular people refer to the would be elite artsy folks as, “Artsy-Fartsy”. There is a large gap in Sarasota between the common working folk and the trendy artsy people. The two groups hardly ever mix either.
I live in Sarasota and you wouldnt want to live there where that one is built. It’s right downtown in the middle of all the congestion.
More sacrifices in the near future. Here in Vero Beach there is an “Auction Extravaganza” on the 18th w/ over sixty properties being auctioned. That is unheard of for this area. Many of the properties are high-end value; beachfront, riverfront, etc. But, apparently the auctioneers are either ignoring the current market conditions or are telling the clients what they want to hear b/c all of the “recommended starting bids” look like 2004 prices.
KBO — sounds like reserve pricing, a recipe for failure this early in the slide. Hopefully, you’ll give us a recap or link when it’s done.
“He then pointed out that the land was officially valued at more than $700,000 by the Sarasota County Property Appraiser.”
We see interesting evidence here that appraisal fraud inflicted land valuations as well as built property valuations.
“But it didn’t work. The sacrifice sale is the latest indication of a real estate market that has gone into a severe correction after a boom that started in 2002 and pushed prices to sweeping highs by early 2005.”
Absolute auction = “sacrifice sale” — That is a great moniker for the rapid deflation of market values which occurs when sellers become sufficiently desperate to cut and run.
I wouldn’t read too much into the “Absolute Auction” results based on some of the auction threads Ben has put up over the last two weeks or so. Wouldn’t surprise me if an agent of the seller put in a bid to save face. You never know these days.
Auctions are less regulated than any other business. Anyone can throw up their paddle and the deal never really has to close.
Good point — we could look at the sale price as an upper bound on the actual bid which a willing buyer would have paid.
Right, the auction in Arizona for the Scottsdale house mysteriously disappeared from the auction firms site with no sale. Doesn’t look right to me.
that was so bogus… but i called the auction house and the auctioneer said it did not sell… i thought it was listed as absolute no reserve.
Think of this as yet another potential means for those who got stuck with overpriced lands and homes to manipulate perceptions of market value.
No reserve but the seller may have required a certain number of paid up participants to go forward with the auction. No use going forward with the auction if there were only say two participants paid up.
More sacrifice to come. Here in Vero Beach there is an “Auction Extravaganza” on the 18th w/ over 60 properties being auctioned. That is unheard of in this area. Many are high-end properties; beachfront, riverfront, etc. It appears the auctioneers are either ignoring the current market conditions or are telling the clients what they want to hear b/c all of the “recommended opening bids” look like 2004 prices. Of course, that does not mean anything to the bidders but it tells me that most of these properties are likely owned by flippers that are just trying to get back what they put into it.
Absolute auction = “sacrifice sale “It ain’t over till the deed transfers title”. If new home builders are experiencing 40% cancellations, I suspect buyer remorse after the auction to be at 50% or more. The great deal they saw on auction day doesn’t look so golden in the bright light of the next morning. Been thru many auctions during the RTC days, and clsoing the winning bid was a major problem. People would win the bid, and then restart
the negotiation. The shrewest bottom fishers were at these auctions, and if they couldn’t get 50% below market, they never closed. I can’t imagine in a down market, open land less that 50% of the $700,000 appraisal would be a good deal to these buyers.
More sacrifices to come. Here in Vero Beach, there is an “Auction Extravaganza” on the 18th w/ over 60 properties being auctioned. That is unheard of for this area. Many are high-end properties; beachfront, riverfront, etc. But, apparently the auctioneers are either ignoring the current market conditions or are telling the clients what they want to hear because all of the “recommended starting bids” look like 2004 prices.
But, still, someone paid $555,000 for the land…. There are still lots of Lesser Fools (LF) out there.
From the article, “Including a buyer’s premium of $55,500, Lisa Lawson agreed to pay a total of $610,500.”
Should I conclude 10 pct is the industry standard buyer’s fee at auction houses? Or, does the fee change from auction house to auction house?
50k to auction, in one morning, a 500k property?
God bless the auctioneers who get this kind of fee but exactly what they do (other than advertising it too hell) escapes me.
This makes the 6% brokers fee look positively cheap.
This is the point I waanted to raise well back in the talk about auctions. All the ones I’ve seen, whether for houses, cars or art, charge both the buyer and the seller a commission and the total is noticeably higher than the typical realtor commission. Presumably, there is a disclosure in the advertisement, at least for the buyer’s portion.
2004 prices can we get 2003 ?
dutch auctions for everyone !
1998!
Now there’s a new angle on price drops. Not only are builders offering deals and discounts “under the table” to buyers so that they don’t have to publicly drop the price, they’re doing even more interesting deals with RE agents. Yesterday’s WSJ:
“Do Real-Estate Agents Have a Secret Agenda?
In a Softening Market, Many Are Receiving Big Bonuses to Steer Buyers to Certain Properties”
Home builders are increasing giving REs big bonuses for steering buyers to their properties, as high as 10% of the purchase price, contingent on “full price offers.” Vacation packages and other noncash bonuses are also common. This is clearly a conflict of interest with the agent’s client, but do they tell the client about this? Nope. “That’s just something nobody ever discusses with buyers,” says an agent at VIP Realty in Naples, Fla. The NAR doesn’t require disclosure of such deals. In contrast, federal regulations require securities brokers to disclose similar arrangements, and the NASD bars the offering and acceptance of noncash awards in such cases.
Just like the MLS portals that citizens get to see never have the agent split field filled in. You can see what’s for sale, but the comission split is secret.
Until you pay your agent from your own pocket they will never be your agent. “Buyer’s agency” is a red herring.
I commented on this in a post in Feb. this year. The bonuses and higher-than-normal commissions paid to the buyer’s agents are continuing to increase and are concealed on the customer displays on at least some MLS systems. I think it contributes to unethical behavior. Here’s my Feb 06 post from southcocoabeach.com
“I’ve been thinking about agent bonuses and commissions for quite a while. As our market has slowed, we are seeing sellers offering higher commissions and bonuses, supposedly to get agents to push their properties. I received a postcard this week from a developer offering not only 3% commission but also a $1000 bonus to any agent bringing a performing buyer. This is troubling to me. It suggests to me that the seller offering the bonus thinks that I would steer my buyer to their property because I would make more money. Folks, if your agents are selecting properties to show you based on the amount of money that they will make, they need their butts kicked. This whole idea of paying a bonus to the selling agent seems to me to be a serious conflict of interest and an incentive to engage in unethical behavior. Without asking, a buyer may never know which properties are more lucrative for their agent, or, if they are even being shown all properties. As it stands, bonuses are legal and commonly offered. I’ll go on record as saying the practice has a foul odor to me. “
Sooner or later builders will realize that their brilliant plans to make millions off of new condo construction will come to naught. Whether they actually cancel, lay off and make different plans is another question altogether.
“‘Sounds like he was operating on the greater fool theory,’ said Peter Magnuson, a Sarasota real estate investor, of the property’s owner. ‘It may be a ridiculous price, but somebody else will pay a more ridiculous price later.’”
Mr Magnuson just summed up the past 4-5 years perfectly! I wonder if he was at the auction to bid or just observe? Sounds like he may be one of the wiser investors that is just patiently watching the market self-destruct. Chances are, he may be able to buy this same parcel next year for another $200K off this price.
Can’t wait to see the next Mike Morgan update. I have not see one around. Anyone?
I haven’t see one recently either. I check Mish’s site quite often for it. Whatever Mike says won’t be pretty, but it will be truthfull.
I sent him a hint.
I lived in Sarasota on & off during the 70’s /80’s/90’s. Downtown went thru a lot of phases. First it was a laid back hippy head shop type of area, then a few eras of ” renovations” that never panned out. Now it’s pockets of Taos style artists shops mixed with nightclubs, like a wanna-be Ybor City in Tampa.
Prior poster is spot on: Sarasota has a lot of wealth but the upper & lower classes never mix.
I was blue collar myself, but kept an open eye on the scene working @ Walt’s Fish Market, then as a lifeguard over in Newtown.
Got homesick for the mountains of N. CA so I moved back to Sacramento just in time for the runup in 1999 !
Yeah, my father was in the USAF. Nomadic lifestyle as a kid gets imprinted & you feel odd after a few years ( usually 4) staying in one place.
Anyway, I keep an eye on Sarasota as a hobby.
Nice beaches, but the humidity sucks before Nov & after Mar. each year.
I always loved eating at Walt’s. The place was good and prices fair. My usual stop was at the one in Venice on US41.
However, it closed up some years back….probably 10 or more.
Do you know if the Sarasota one is still in business??
hey Diogenes
I know the main Walt’s Fish Market in Sarasota closed & everything was auctioned off, then the building razed.
As far as I could gather after the old man (walt) died of cancer his 2 son’s gradually lost interest in the business. The place really went downhill.
The grandson was a nice guy but I don’t his story.
A shame really because in it’s prime they had the best seafood bar none. fresh n plenty of it.
too, too bad.
It’s sad when very good small businesses close down and crappy chains replace them. I alway try to go for homegrown, as opposed to standardized business models.
Walt’s was truly a great place. It is sad it has disappeared in all but our memories.