March 24, 2008
Going Once, Going Twice (For Real?*) At Shore|Line: 41 Federal #42
As you might recall, 41 Federal #42 had been offered by the developer for $850,000 sixteen (16) months ago before being purchased and then lost to the bank. The opening bid this week will be $100,000*. Care to forecast the final price?
And in case you didn't catch it, our 41 Federal headline almost three months ago: “Going Once, Going Twice…Going Five Times At Shore|Line: 41 Federal.” Boo.
*UPDATE (Redux): While we originally noted the lack of a “reserve” price and intimated that “it will sell,” it appears as though ex SF-er correctly parsed the auction's "subject to approval" language, and tipster demonstrates how being the highest bidder isn't always high enough.
∙ Real Estate Auction: 41 Federal #42 [williamsauction.com]
∙ Seller Motivated Drastic Price Reduction Penthouse Unit [SocketSite]
∙ And Now We’re
Back Below Where We Started [SocketSite]
∙ Savings At Shoreline (41 Federal) [SocketSite]
∙ Going Once, Going Twice…Going Five Times At Shore|Line: 41 Federal [SocketSite]
First Published: March 24, 2008 3:00 AM
Comments from "Plugged In" Readers
How high do these auctions usually go? How far below asking price? I fear the auction price could go even higher than the previous asking price. What's the best deal to be gotten in San Francisco out of a RE auction?
Posted by: hi at March 24, 2008 12:48 AM
What I have seen previously is that the bank that holds the mortgage will show up to bid on the property and the bank's bid will be the amount of the outstanding mortgage.
Posted by: Brian at March 24, 2008 5:38 AM
The bank already owns the property. This is not the courthouse foreclosure auction. That already happened. This is the bank trying to sell the property for any price because it is not in the business of property management and because it tried unsuccessfully to sell the property for months without a bid.
Posted by: k10 at March 24, 2008 6:24 AM
It's a little hard to find information about this property from public sources, but from what I can see, it has (had) two loans on it, a $680K first and an $85K second. (Info is just from Propertyshark - I can't vouch for it of course from personal experience :)) So, assuming that the first lien bank actually already owns it (as k10 above notes), that means the second mortgage is already blown up, as is the downpayment of $85K.
I'll start the guessing! I say it will sell for ~$595K, which represents a 30% decline from its purchase price, in just about 17 months.
Posted by: Satchel at March 24, 2008 6:39 AM
is this a no-reserve auction?
I've been to a lot of these auctions (not in SF though, these were in SD), and in general there is a very high reserve price. the auction is more of an ad-campaign and not really a true auction.
time and time again I went to auctions where nobody hit the reserve price, so the house didn't sell (again, this was in San Diego)
I'm wonder if the same applies here?
Lenders IMO haven't shown a strong willingness to take a loss, regardless if they're supposed to be in the RE business or not.
I think this sells for $700k+ or not at all due to a high reserve.
FROM THE WEBSITE
All auctions are subject to court or seller approval. Over 90% of all sales are approved, most within 7 business days
[Editor's Note: According to the website there is no minimum bid or reserve (aside from the opening bid of $100,000) ]
Posted by: ex SF-er at March 24, 2008 8:24 AM
Posted by: Nicole at March 24, 2008 8:55 AM
Posted by: gh at March 24, 2008 9:02 AM
Posted by: yao at March 24, 2008 9:10 AM
$550K - CAP rate of 3% and/or $600 a square foot.
Posted by: Michael at March 24, 2008 9:23 AM
Posted by: asiagoSF at March 24, 2008 9:24 AM
$644,000. ($700/sq ft) I've been in this unit...nice finishes, overall a nice building for a vary particular type of buyer.
Posted by: recentinfinitybuyer at March 24, 2008 9:59 AM
Well, if we're going Price is Right style, this is where someone usually bids $1, right? ;-)
I think this will be a good indicator of how far the market has changed for these "entry-level" 1 BRs...
Posted by: Foolio at March 24, 2008 10:16 AM
Posted by: spencer at March 24, 2008 10:24 AM
Posted by: Mystery Realtor at March 24, 2008 10:27 AM
[Editor's Note: According to the website there is no minimum bid or reserve (aside from the opening bid of $100,000) ]
question: do you know on what basis a seller would refuse to approve a sale, if not for price reasons?
I'm trying to reconcile
-all auctions subject to seller approval.
also: I couldn't find on the website where it explicitly said "no reserve"
thanks in advance.
[Editor's Note: From the Auction FAQ: "Is there a reserve price? No. The properties are liquidated to the highest bidder subject to approval of the sale and execution of the offers." That being said, you raise a great point about the "subject to approval" language and the FAQ also notes: "Is this an absolute auction? No. All sales are subject to court or seller approvals that require that the non-revocable offers be delivered to them for execution." (So consider us skeptical now as well.)]
Posted by: ex SF-er at March 24, 2008 10:31 AM
Posted by: Can't think of cool name at March 24, 2008 10:34 AM
It's a horrible unit -- dark, tunnel effect, overproduced kitchen, bad view, etc. Why can't the lender do something creative, like offer the master bedroom to be combined to the folks on one side, and the kitchen to the residents on the other side. Cut your losses and cut this thing in half.
Posted by: observer at March 24, 2008 10:45 AM
This is just a scam attempt at marketing an overpriced unit. The bank won't accept any offer that's too low, guaranteed.
These kinds of circus events go on all over the country now and the common thread is that the number of transactions that actually close is very small.
Posted by: Jimmy (Bitter Renter) at March 24, 2008 11:35 AM
I wonder about that, Jimmy (Bitter Renter), too - whether it is just a scam. Can anyone pull the loans on this unit and post what the first mortgage is? From what I can tell (the data are a little sketchy and hard to follow on Propertyshark) it looks like this unit was purchased with a $680K first loan and an $85K second.
So, if that is true, and the first lien holder already holds the property, $680K would make them whole. The second lien holder has already been blown up and has nothing to say about it anymore. A 20-25% discount in this environment would be a gift for a lender, as loss recovery severities have been running at 50%+ for REOs. Obviously, although there are selling and carrying costs to consider when thinking of loss severities, I bet that the bank would jump on a good offer at, say, over $550-560K (which would probably net the bank a bit more than $500K - a less than 25% loss severity).
I guess we'll know soon!
Posted by: Satchel at March 24, 2008 12:44 PM
Posted by: mark at March 24, 2008 12:47 PM
I haven't seen this place, but it sounds like it has nice finishes despite being small with an odd layout. I say it goes for just under $750 psf... which means $685K.
Posted by: Lance at March 24, 2008 12:57 PM
Satchel - I didn't see any individual units at PropertyShark - just one for 41 Federal Street. Property tax bill looks like it is still the undivided property (Block 3774 Lot 15), but the parcel map at the assessor website shows 11 divided lots (433 - 443) of which #42's is Lot 442 per the legal description at the auction website. Here are the MLS sales shown for the building:
Unit 42: $880K, 12/18/2006, 921sf
Unit 31: $895K, 12/18/2006, 1060sf
Unit 32: $835K, 2/23/2007, 921sf
Unit 33: $1,295K, 3/20/2007, 1423sf
Unit 41: $880K, 3/23/2007, 956sf
Unit 23: $1,495K, 7/27/2007, 1635sf
Posted by: FSBO at March 24, 2008 1:34 PM
One tip off that you are really just bidding for the right to make an offer is the fact that the auction web site doesn't indicate properties are "sold", but that they were "auctioned".
Some do sell, but of the two I checked, one was "auctioned" but is not sold, at least according to zillow.
I selected 2444 Ollie Ct. in Bakersfield, which is listed as auctioned, but Zillow doesn't list it as sold. (Another home I checked was listed in both places as sold for the amount of the high bid listed in the "auction".) The one that didn't sell was purchased for $600K just 5 months before the "auction", the high bid was $300K, and the bank appears to have said no thanks.
All real estate is theater. This "auction" is nothing less.
Posted by: tipster at March 24, 2008 2:03 PM
Interesting data, FSBO. It looks like my surmise about the amount of the first mortgage is incorrect (I was looking at the sale at $850K listed on Propertyshark, which is the last amount the developer was asking for this unit according to SS).
So, this brings up some interesting questions about this Unit, and may give us some clues as to why this fell apart so soon (I mean, the tax records haven't even been separated into parcels yet, and we ALREADY have a foreclosure AND auction!).
If FSBO's MLS data are accurate, it looks like this owner OVERBID on a property that was last listed for $850K (this owner paid $880K!). At $955 psf, this owner paid more than all the other units mentioned by FSBO (the other units ranged from a low of $844 psf for #31 to a high of $921 psf for #41).
Why would this owner have overbid, when the listing had ALREADY been reduced to $850K? (See http://www.socketsite.com/archives/2006/11/savings_at_shoreline_41_federal.html and note the "reductions" mentioned) Was this just a clueless buyer? Or was it a "first payment default" involving cash back at closing? Who knows, but it will be interesting to watch what the psf price has fallen to, assuming that this is a real auction (although I guess I have to lean now towards tipster's thought that this is all a show designed to snare another clueless buyer).
Posted by: Satchel at March 24, 2008 2:58 PM
"Why would this owner have overbid,"
Could have been upgrades.
Posted by: tipster at March 24, 2008 3:11 PM
Good point, tipster. Perhaps you're right.
About the auction, another thing occurred to me. the website for Shore | Line (41 Federal) says there are 9 "homes", yet FSBO's MLS data only show 6 sales. Could the developer STILL be holding some units (perhaps renting them?), or perhaps there are just sales that were off the MLS?
If they haven't even finished selling the units, and there is already a default, seizure and auction, well, then the developer might have an interest in trying to obtain the unit being auctioned in order to "mask" the true price. Does anyone know what is up with the other 3 units?
Posted by: Satchel at March 24, 2008 4:31 PM
Here's a gig idea: Socketsite throws a faux auction in advance of the real thing (that would have to be tomorrow night in this case?) where bidders come armed with $1 bills. A buck is worth 10 thousand dollars in this faux auction. The object is to bid the closest to the final sales price at the actual auction. The winner gets bragging rights. All proceeds go to the 501c charitable cause of your choosing. Or maybe you line up the non-profits and the winner picks? Sound like fun?
Posted by: GoodBuyBadTimes at March 24, 2008 6:22 PM
"Sounds like fun?"
I think not.
Posted by: incredirent at March 24, 2008 7:00 PM
The list price for Unit 42 started at $875K in Sep 2006. It then bounced around from $875K to $825K with a brief stop at $850K before it went pending and sold at $880K. Can't find any data on the other three units. Listings also mentioned that building has 9 units.
Posted by: FSBO at March 24, 2008 7:22 PM
The developer is unlikely to grab this unit at a too high price to mask the true sale price, when he doesn't really have that many he's worried about closing, and he doesn't have a second tower going up next door. It's possible that the developer would do that, but not very likely. He'd be adding 25% to his inventory and not really helping himself do anything but sell 3 more units -- not worth it.
For One Rincon Hill, I would have been surprised if the developer *didn't* buy the first resale, because the costs of doing so would be made up for with a few more closings and the good press for the second tower, but this place, I doubt it. With more and more units for sale at ORH, though, it makes it tougher and tougher for them to buy the first ones.
Posted by: tipster at March 24, 2008 9:44 PM
if the unit is as bad as everyone here says any lender would be crazy NOT to take 500M to 600M and just dump it.
it will be a long time till its worth any more.
Posted by: louis at March 24, 2008 10:48 PM
"if the unit is as bad as everyone here says any lender would be crazy NOT to take 500M to 600M and just dump it"
louis: the problem with this strategy is the way that the accounting works.
If the lender sells at a loss then they have to book a loss, which the lenders are trying desperately not to do.
if the lender keeps it as a REO then it's not yet booked as a loss.
(chief example is Countrywide which has over a billion dollars of REO in California alone on the books right now, and almost $3 billion nationwide)
It brings up another problem, however, that is that the more REO a lender owns the more they have to put aside funds for reserve requirements.
luckily, the Fed has figured this out somewhat, and now the banks can borrow money to use as their reserves.
it doesn't solve all problems... the bank's money is tied up since they won't/can't sell the REOs, making them thin on their reserves, hence they can't lend money. so they're just kind of "sitting there".
this is what we call a "zombie bank". and many people are afraid this is what amercian banks are coming to. (like Japan, where they had insolvent/dead banks that just existed for over a decade)
the hope (by all in the financial world) is that the credit markets will sort of "unstick" and then the lenders can recapitalize and start moving again. nobody knows if this will work or not. i personally am pessimistic but that said the Fed has been very innovative and the markets really want this to happen so it is possible.
In Japan, it did not work (10+ years of zombie banks) but we are NOT Japan (for better and worse). the big difference: we are a nation of debtors as opposed to Japan-a nation of savers.
Posted by: ex SF-er at March 25, 2008 5:49 AM
What ex SF-er says about banks not being willing to recognize losses on REO properties (by actually selling them) makes sense in general. However, slowly but surely banks ARE dumping the properties and recognizing the losses (take a look at the chart at the "Countrywide Foreclosures Blog", for instance).
Here, I would think that as the bank has gone to the trouble of setting up the auction, after the property having (quickly) run through successively lower listing prices from $939K to its most recent $781,200, it looks like the bank is getting ready to ingest its merde baguette. Of course, if the baguette turns out to be too fragrant, well I guess then the bank might nix the high auction bid.
In any event, the high auction bid will be a good signal of how far the price has fallen, and how far underwater the other owners of the units are. The key to what happens next will be to see what the other owners do, as well as what the developer does with the other 3 apparently unsold units.
(The $781,200 not listed above in the text of the post, but see here:
Posted by: Satchel at March 25, 2008 6:44 AM
It goes for ... $475K. :D
Posted by: S&S at March 25, 2008 10:06 AM
I think that the auctioneer's shill will place the 'winning' bid at $543,900...and (obviously) fail to close.
The other bidder will then be offered the place for $543,800, and will... (still overpriced)
Posted by: buck at March 25, 2008 12:09 PM
We actually are not a nation of debtors ex-sfer. We've been acquiring assets for 50-60 years and despite the lack of savings still get a nice inflow in every year from oversees investments. We are a nation of under savings in part because we have assets that help finance current consumption. However, it is unsustainable and I believe we have seen the turning point where we are finally starting to consume less and save more. It does mean a slight decrease in standard of living for our country but longer term, its a needed adjustment.
Posted by: cooper at March 25, 2008 12:18 PM
high bid was 700k
760 per square foot is the newer development neighborhood auction comp
Posted by: outbid at March 26, 2008 4:54 PM
Once again, the armchair economist are proven wrong. The only one that was remotely close was Lance. Satchel, you think you are such a know-it-all you are nauseating. You were way off. Love it!
[Editor's Note: Actually, we'd consider a couple of those other "armchair economists" to have been pretty darn close as well: ex SF-er "I think this sells for $700k+" (yep) and Nicole "$679,000" (that's within 3%). And it's funny, for some reason we can't find any record of your non-armchair pre-auction prediction.]
Posted by: anon at March 26, 2008 5:02 PM
The auction high is 760 psf or 15% less than the 900 avg, and only 10% less than the unit that sold for $844 psf. Still I would compare it to the unit 32 which has pricing of 906 sf and is on a lower floor and that difference is 17%,maybe 2% for the higher floor, still under 20% This is comparing pricing from when sold to a distress auction. Not quite as dramatic as the 30 or 40% reductions that the bears have been predicting, impossible to tell when the market has bottomed out, but there is apparently still some confidence in SF real estate. We'll see if the bank accepts the high bid, when do we know SS?
Posted by: viewlover at March 26, 2008 6:24 PM
never mind, 7 days.
Posted by: viewlover at March 26, 2008 6:27 PM