Earlier this month, 260 people crowded into the ballroom at the Marriott Hotel in downtown Brooklyn for an auction that promised bargain-basement prices on 16 newly built luxury condos at a nearby Greenpoint development called The Locale. In the end, four bidders became proud apartment owners with winning bids of as little as $272,000, or 44% off the original asking price.

The auction was the first of its kind in the city, one in which a developer put all of the units in a project on the block—with starting bids as low as 75% off the original asking price. At press time, an even bigger auction was scheduled for Sunday in the swank Riverdale section of the Bronx. There, 54 one- to five-bedroom apartments at the 20-story Solaria condominium were slated for sale in a trend that many expect to accelerate.

“You will see a large number of auctions coming,” says Jeff Hubbard, senior managing director at Sheldon Good & Co., which conducted the auction on behalf of the developer of The Locale. “In New York, there is clearly a supply of inventory that needs to be absorbed.”

Still, many industry experts predict that auctions, which have been prevalent in hard-hit markets like Florida and California for several years already, will take a while to catch fire here. In part that reflects the reluctance of the creditors of some big distressed developments to see their investments marked down for a quick sale at auction.

'Let buyers set the price'

“It will be a gradual process, but auctions will become more of a phenomenon,” says Jonathan Miller, chief executive of appraisal firm Miller Samuel Inc. “Auctions are a way to accelerate the absorption of units.”

With apartment sales down 16% from a year ago, and with new units continuing to hit the market, inventory has spiked to 8,389 units in Manhattan, and that figure doesn't include nearly 7,000 units that have not yet come to market, according to Mr. Miller. As a result, it now takes 194 days to sell a Manhattan apartment, up 51 days from 2008, making auctions increasingly attractive.

Neighborhoods like Williamsburg, Brooklyn, where condominiums have been rising in recent years, are likely to see the most auctions, according to brokers. But pockets of Manhattan, including Harlem and the financial district, are also likely to see their share of auctions.

There have been 150 sales so far this year in the financial district. At that pace, it will take up to five years to absorb the inventory, according to Kelly Mack, president of Corcoran Sunshine Marketing Group. Recent Crain's research shows there are at least 1,400 units there that are either for sale or about to enter the market.

“Auctions would be helpful in submarkets where there is so much excess inventory,” says Ms. Mack.

Arc Development, the owner of Solaria in Riverdale, has another reason to auction off its units. The tower was the first high-rise luxury condo built in the area in twenty years, so there were no other comparable luxury high-rises to set price points, says Joseph Korff, a principal at Arc, which hired Real Estate Disposition Corp. to conduct Sunday's auction. By the time the market tanked in 2008, Arc had sold only 10 of the 64 units.

“You got to have a variety of tools to adapt to market conditions,” says Mr. Korff. “I am willing to let buyers set the price.”

TreeTop Development, which built The Locale, had a different reason for auctioning apartments. The developer stopped the auction after four units had been sold, the number it needed to declare the condo development effective, according to David Maundrell, president of brokerage Aptsandlofts.com, which helped with the auction.

“They did an effective job in Brooklyn,” says Jon Gollinger, founder of Accelerated Marketing Partners, a residential real estate consulting firm that over the last two years has conducted 30 auctions of high-rise luxury condo developments. “What makes these accelerated programs work is they allow you to get out before the other guy. In a declining market, that translates to getting the higher price.”

Clinging to hope

But for the many developers still clinging to the hope that prices will soon rebound, auctions make less sense. They are also not popular with lenders, which have more cash on the line in most projects than the developers themselves and are reluctant to take the financial hit that auctions would bring. Mr. Korff says he was able to opt for auctions and quick sales because he had relatively little debt on his project.

Unless both prices and sales volumes pick up considerably, more developers are expected to follow his lead and that of landlords in other markets around the country, where the residential real estate crash hit long before it did here. Mr. Gollinger said he has done $500 million worth of auction sales within the past 12 months throughout Florida and California, and in cities including Chicago and Boston.

“New York was the last to get hit,” says Andrew Gerringer, managing director for Prudential Douglas Elliman development marketing group. “We are surrounded by auctions in Boston and New Jersey.”

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