If you have ever attended an auction, you know that the event takes on a rhythm of its own.
The question uppermost in every bidder’s mind is when to raise a paddle and how high an offer should go. Is early in the event better than later? Is waiting until just before the hammer strikes a good strategy? Who is bluffing and who is serious?
John J. Cuticelli Jr., who purchased the Sheldon Good auction firm in a bankruptcy sale last year, spent some time on the telephone with me explaining his business model and letting me know a bit about sale strategy during an event such as the disposal his company orchestrated of numerous units in Astoria’s East River Tower last month.
“Every auction has a downward slope,” Cuticelli observed. “The question is, how do you flatten out the slope? If the slope is too great, the first guy to win a bid is never going to close.”
Since selling prices tend to keep declining as the event proceeds, it behooves the auctioneer and his client — the building’s developer — to monitor prices per square foot and withdraw properties as the number falls. I was told after the East River Tower auction that the average price was on target at approximately $475 per square foot, at which point the developer pulled out most of the remaining units and walked away content.
In Cuticelli’s view, an auction verifies the market value of a property.
“It is a price verification technique,” he said, adding that an auction would never result in everything selling out. Once the right price is known, the developer can build on what he or she has learned, and Sheldon Good continues to market East River Tower, though at higher listing prices than comparable condos achieved at the auction.
However, at least two phenomena can color value. One is the well-known engine of buyer remorse known as auction fever. Another is timing: buyers who are not quite ready to jump off the fence won’t be bidding or perhaps even attending. A third issue is that auction terms such as a quick all-cash closing may discourage others from participating.
Still, Sheldon Good’s CEO maintains his desire to work with developers early on. Citing his previous experience as an executive at Hong Kong Shanghai Bank, Cuticelli said he was alarmed to see loans being underwritten on the developer’s wishful projected annual gains of 2 percent, 3 percent and even 5 percent for properties that state regulators had approved.
“Matching the true equity value with what the market really can afford to pay became the new focus of our business,” he declared. “We want to educate our sellers, and we want to provide consumers with the most realistic and transparent price we can.”
If a developer fails to appreciate the true value of his property for auction purposes, Cuticelli continued, “we turn them down.” He insisted it happened just recently and that the commercial property did not sell at an auction conducted instead by a West Coast firm.
He acknowledged that developers and auctioneers do, in fact, always engage in a little dance about pricing, marketing expenses and commissions. Whether Sheldon Good is alone in turning down prospective deals I have no way of knowing, but it would be foolish for any firm to waste time and money on a losing proposition.
Cuticelli purchased Sheldon Good — for which he had opened the New York City office two decades ago prior to his departure in 1991–for a little more than $2 million, including the assumption of liabilities. The auction concern is one of three subsidiaries of his privately held holding company, Racebook Capital Partners, a private equity firm founded in 2004. (Racebook is the name of a street on which he once lived.)
When I asked whether he was close to breaking even, Cuticelli chuckled as if to say that it wouldn’t be soon. Quoting his son Ryan, who along with brother Jonathan, work in the family owned company, the CEO replied, “When you buy a company that is forever, what does the purchase price mean?”
That’s easy to say, I suppose, unless the ink continues to run red. For the family’s sake, perhaps that won’t be for long.
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022