Stuart Gruendl began developing Eight Orchids in the fourth quarter of 2005—when the market was still booming. At the time, it seemed like a great condo project, one with the right mix of location and demand. Geared to the area's large Asian-American population, it is the only high-rise in the Chinatown section of Oakland, Calif. But by the time pre-sales began in June 2007, the home buying market had already begun to tank—leaving Gruendl faced with a scenario that would make any developer nauseated. Despite steady traffic at the 157-unit site, he had sold only 21 units.

With Eight Orchids' grand opening r rapidly approaching, Gruendl, founding partner of Oakland-based BayRock Residential, discovered that one of his competitors was planning an auction at a property half a mile away. So he made a bold move. As part of his March grand opening, he chose to auction off 41 units in the building.

“The pre-sales are nonexistent,” Gruendl said a week before his auction. “We're doing two times to three times the traffic in a normalized pattern. I believe I've got pent-up demand, and I think the auction is the right event to drive that traffic to the table and do deals.”


Gruendl's foray into the auction business proved to be the right strategy. The auction lured 183 bidders, and Gruendl reports selling all 41 units at 93 percent of his last asking price. But that might be the best part. “We sold most of the inferior units, leaving 95; we essentially sold the dogs,” he says. Since then, another 12 units have been sold.

What's more, Gruendl now has up-to-date comps to help sell the remaining units. He also has a fresh list of more than 2,500 people to whom he can market these units over the next six months. “We feel like were going to gain traction [in pricing] because now we're left with premium units,” he says.

Unlike many of his colleagues around the country, Gruendl didn't use the auction as a last-gasp attempt to keep his business above water. Though they are often used as a way to get rid of excess units in a hurry, auctions can also generate excitement around a property that has stagnant sales. Still, there's a lot to consider before calling up your local auction company. Before you do decide to take to the field and risk the auction game, experts say there's a definite path you must follow to achieve success.

STAGE 1 Know the players—and the game.

Condo developers andand converters who putut their units on the market are not alone in making the decision—there is often a lender helping to make that call.

“Today, there is good communication betweenn lenders and borrowers,” says Frank Diliberto, president and CEO of Inland Real Estate Auctions in Oak Brook, Ill. “They're always talking and meeting about exit strategies, but we're not seeing a tremendous amount of lender activity yet.”

Right now, many lenders are doing everything in their power to keep their builders affloat. But there's potential for a lot of real estate, including single-family, townhome, and condo projects, to boomerang back to them.