Properties can be hurt by mis-managed auctions.

Properties can be hurt by mis-managed auctions

Despite their great potential, real estate auctions can seriously damage a project if not managed carefully, warns John Kosa, president of Manhattan-based Kosa Properties, Inc.

"Yes, real estate auctions are here to stay," said Kosa, a consultant to developers. "But they don't run themselves - not by a long shot."

The days prior to and following the auction are often more critical than the actual auction itself, said Kosa, who recently managed a successful auction of medical-office condominiums, called Health Care Place, in Rego Park, Queens.

Vital to the process is hiring a good auction company, he recommends.

"In this market, many real estate auction companies claim to be competent," said Kosa. "But the savvy developer makes sure the company he selects has the right people on site - experienced in the field, able to sell effectively, and not overextended. Sometimes it helps to retain a consultant knowledgeable in marketing, to oversee the auction."

Crucial for any good auction company is the ability to put potential bidders at ease.

"Most people are apprehensive at auction," points out Kosa. "A good auction company will do everything to make those bidders as comfortable as possible, while at the same time, they're hard at work selling. And that's the whole idea, of course."

Proper follow-up after an auction is also essential, says the consultant.

"At Health Care Place, we sold $730,000 in medical office condos at the auction itself, which is impressive, given the inherent thinness of the medical market, "he said. "But by shrewd post-auction techniques, the J.P. King Auction Company also was able to sell an additional quarter of a million dollars in units."

At the Health Care Place event - the nation's first auction of medical-office condominiums - fully 15 of the 18 available units sold, said Kosa, who served as consultant to Western Management, the developer of the condos.

In five years, most commercial property will be sold at auction, predicts Kosa.

"There are two reasons for this," he said. "Buyers know they aren't overpaying, since the actual market value is established by public bidding.

"And sellers have the chance to raise needed funds, and put spiraling interest and carrying costs."

Though auctions make a lot of sense in today's market, they aren't right for every property, cautioned Kosa.

"For an auction to work, the market for the property must be large enough to generate competition among bidders," he said. "Otherwise, even the smartest developers may spend $100,000 and more up front, and still get stuck with his inventory. Then they have to live with resultant low values, which can kill a project entirely."