War Eagle Condo Bust
by Doug French by Doug French Recently by Doug French: Bankruptcies Are Good News
Back in the middle of this decade, building anything seemed like a good idea. With the housing boom in full bloom, developers had the imagination, lenders had the construction money, and buyers had swarms of mortgage lenders panting to lend them the entire purchase price of anything their hearts desired. So imagine the confluence of combining Auburn Tigers football and real estate: a certain touchdown.
After all, the much-loved Tigers were undefeated in 2004 under the guidance of revered coach Tommy Tuberville and were ranked second in polls at season end. The 87,451 seats at Jordan-Hare Stadium would never go wanting on game day and what every red-blooded Auburn fan of means couldn’t live without was a game-day condo. Heck people would buy units just to have a parking place on game days when the population of Auburn more than doubles.
But by the summer of ’07, even with Tiger football still in a bull market after an 11—2 season, the real estate bubble was starting to lose air, just as the Tiger football suites project was being completed. The 73-unit complex is just a short walk from Jordan-Hare Stadium, with many of the units having balconies that face that direction. And if you couldn’t see the stadium from your unit, you surely would have a great view of the water tower across the street. Units facing north looked down upon the adjacent railroad tracks, and for those who enjoy the rumbling sound of a passing train what could be better than sleeping right next to the tracks?
But now two years later, Coach Tuberville is unemployed and Auburn football is rebuilding after a losing season. The real estate bubble has completely popped, so the 49 remaining unsold units at the football suites were put up for auction last week in what was dubbed the "WAR AUCTION!" in the auctioneer’s brochure. "It’s the Ultimate War Eagle Condo Auction and it’s Available for One Day Only!"
With an attempt to muster all the luck possible, the sellers scheduled the auction to start at 11:07am and about 80 folks here there when the auctioneer started the proceedings with a prayer. He asked the Lord "to be especially with the seller…oh, and the buyers as well."
But lucky numbers are no match for this market, and the requested divine intervention was not to be. Twelve of the 49 units were to be sold absolute, regardless of price. These 12 were auctioned first — presumably to build momentum and get the crowd revved up to bid more on the reserved-price units.
But there was no momentum to be had. The first unit up for bid was the two bedroom deluxe unit measuring 1,200 square feet. The auctioneer called for initial bids of $300,000 after all, the original asking price was $389,885. Despite aggressive urging by the auctioneer floor staff, there were no bids until someone up front shouted "$70,000!" The auctioneers collectively scoffed, and quickly moved on when $100,000 was offered. The 2bd deluxe finally went for $260,000 or 33 percent less than the original asking price.
It was all downhill from there. The next 2bd deluxe went for $245,000. Four of the 861sf, 2bd lockout units were sold absolute for between $125,000 and $135,000, less than half the original $279,885 asking price. Four of the spacious 894sf, 1bd deluxe units were sold for $105,000, a more than 60 percent haircut from the original $279,075 price. Finally, after a train appropriately rumbled by at 11:45, a 768sf one bedroom unit went for $70,000 and $63,000 was fetched for a 581sf studio suite, roughly a third the original prices of $210,075 and $188,825, respectively.
When only $200,000 was the highest bid on the 2bd deluxe unit that was being auctioned with a reserve, and with most of the crowd gone, the auction was stopped. The absolute bid prices received were just too low and there was no sense going on was the word. But anyone who wanted to make a "reasonable offer" was invited to stick around and negotiate a price on the unit they wanted.
Of course the prices offered during the bidding were reasonable. As Bart Fuller wrote in a Mises.org Daily article: "The beauty of an auction is that it’s a very clear and simple example of what goes on every day in a free market — buyers and sellers meeting to negotiate a price." In the case of an absolute auction, that doesn’t mean the seller (or the seller’s lender) is going to like the price. If in two years time the seller can’t sell the units for what the seller wants, obviously what the seller considers a reasonable price is higher than what buyers consider to be reasonable.
Ironically, the War Auction bust comes less than three weeks after the US News and World Report selected Auburn as the second best place in America to live. "For Southern charm with collegiate vigor, consider Auburn, Ala.," writes Luke Mullins. "On football Saturdays, when die-hard fans arrive in droves to cheer their beloved Tigers, Auburn swells to the state’s fifth-most-populous city." But a US News and World Report endorsement doesn’t sell units in this market.
Auburn fans are counting on new coach Gene Chizik to quickly turn their team’s fortunes around. At the same time, the developer of football suites is hoping the real estate market quickly turns around. Neither has a prayer.
