When pairing the continuing volume of new residential construction in downtown San Diego with a cooling market, where rising construction costs have continued and sales activity has slowed, the result has been that some developers have halted their projects. Now, one developer is taking a different approach by proposing to auction off a condominium project not yet under construction but that has completed all the planning and permitting necessary.
T.C. Holdings, a Newport Beach-based real estate investment firm, was planning to turn a 20,000-square-foot downtown parcel into a 26-story, 200-unit condominium project called 11th & B.
The development plan calls for a 232,669-square-foot tower, with 7,000 square feet of retail and 84,000 square feet of subterranean parking. However, the company has now turned to broker Rocket Rod Inc. and Chicago-based auctioneer Inland Real Estate Auctions Inc. to auction the project. Construction was previously anticipated to start in summer.
Todd Carson, president of T.C. Holdings, said the choice to auction the property was in some part due to building costs. However, he added, selling the property prior to groundbreaking was part of the potential plan. He thinks there currently is an opportunity to make a profit rather than build the project and run the risk of a financial loss for the company.
"There is no reason to panic, but why not make a profit," he said.
According to Darryl Cater, spokesmen for Inland Auction's parent, Inland Real Estate Group of Companies Inc., developers that seek auctioneer services from his company either have planned to sell the project prior to groundbreaking all along or are doing so because of rising costs.
"The fact that you're seeing developers planning this from the beginning is a trend ... people are seeing this as a way to do business," Cater said.
One aspect he thinks this project has that will attract developers is the fact that the planning and permitting processes, which he agreed are the toughest obstacles in the way of a development beginning, are complete.
In a past Daily Transcript roundtable, Ure Kretowicz, CEO of Cornerstone Communities, said going through the environmental review process, receiving general plan approval and pulling permits typically takes 10 years.
According to Carson, auctions similar to this are a common thing throughout the country, but he hasn't heard of it occurring in San Diego before.
"More and more, as the market changes, developers are seeking ways to share the risk and reward of significant developments in red-hot markets like San Diego and Chicago," said Frank Diliberto, president and CEO of Inland Auctions. "In the last 18 months, the number of permit-ready development projects that have been referred to us for auction has substantially increased. This is revealing not only of market trends, but also of the increasing use of auctions to sell top-flight, trophy property."
The size and scope of a property varies widely as does the type of property, which can be residential or commercial, according to Cater. He gave an example of a historic property in Chicago that had been shut down for several years. A developer purchased the property with the idea of converting to condos. However, on the brink of the groundbreaking, the developer sold the plans.
Besides Chicago, similar auctions are common on the East Coast, Cater added.
The 11th and B property was previously listed through a conventional real estate broker and appraised in 2005 for $15 million, said Paul Rogers, vice president of Inland Real Estate Auctions Inc. Now it will be auctioned subject to a minimum bid of $6.75 million.
Cater said it's difficult to state what price the property will sell for, but suggested it is likely to be a good deal.
"If you're bargain hunting, it's certainly an opportunity," Cater said.
The auction terms can be found in bidders' information packages available from Rocket Rod. Parties interested in bidding must attend at least one bidder's seminar. The first is scheduled for July 12 at the Omni San Diego Hotel.