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A developer credits technology for speeding the sale of 63 residential lofts in the historic Rowan Building in Downtown Los Angeles. But the innovative Web-based auction system still fell short of expectations.

Downtown Properties Holdings LLC hoped to auction 79 units last Sunday–enough to boost the number of units under contract to 50%. Auction pioneer William R. Stevenson considered it a viable goal, predicting all of the units could sell in as little as two hours at minimum prices as low as $195,000.

That prediction, however, proved overly optimistic. It took about three hours to sell 63 units, Stevenson said. Despite the slower than expected pace, Stevenson nonetheless said he was “thrilled” to move $21.8 million worth of real estate.

Stevenson is a partner with Downtown Properties, founder and former president of auction firm Kennedy-Wilson Inc. and president of Los Angeles-based Intelligent Market Systems LLC, the firm that conducted Sunday’s auction. He’s conducted numerous high-profile auctions including the $411-million sale of six Landmark Resorts golf courses and hotels for the Resolution Trust Corp. and a $200-million sale of long-term contracts for Shell Chemical.

The auction could breathe new life into an eight-year-old loft conversion project challenged by delays and economic conditions. About 90 of 120 presales fell through, leaving most of the property’s 206 units vacant.

Stevenson wanted to sell 79 units so half the building’s units would be under contract. Fannie Mae and Freddie Mac both require at least 50% of units sold before closings begin. “It’s difficult to get sales quickly in this market. We don’t exactly know where to price, either,” Stevenson explained. “Nobody is an expert out here.”

The auction gave buyers the chance to set true market value, Stevenson said. Nobel Prize nominee and California Institute of Technology professor Dr. Charles Plott, Stevenson’s business partner, spent 10 years developing the proprietary Intellimarket Internet Auction System software that powers the auction. “The transparency of the auction gives buyers the confidence that they are not paying over the market rate. Sellers secure higher prices for the property by allowing buyers to switch their bids from unit to unit and save marketing costs by selling so many units at one time,” Plott said.

Stevenson said the system “improves buying and selling efficiency and helps buyers and sellers meet the challenges of operating in today’s competitive real estate economy.”

Unlike conventional auctions where items are sold one after another with the auctioneer in charge, the system sells all units simultaneously with the bidders determining the auction’s pace and length. In other words, all 79 Rowan lofts were auctioned at the same time. Buyers had the chance to see all the bids on each unit on large bidding screens at the auction site or on their own computers through a secure Internet site. The auction clock reset every time a new bid was received, giving bidders time to consider their next step. One potential buyer bid–unsuccessfully–on four units, Stevenson added. The auction continued until no new bids were placed on any unit for five minutes.

The seller’s preferred lender prequalified all buyers who participated in the auction. They potential buyers were also required to complete a registration form and make a good faith deposit.

The developer retained the right to cancel the deals if fewer than 60 units sell during the auction. Had that occurred, Stevenson said, the developer would have transformed the property to rental units.

The lofts are located at Fifth and Spring Streets in a Beaux Arts building in the heart of Los Angeles’ Old Bank District. Designed by John Parkinson and G. Edwin Bergstrom and built by real estate developer Robert A. Rowan in 1911, the property once housed some of the city’s oldest and most prominent law offices and stock brokerage firms.

The lofts feature historic interior elements including Carrera marble corridor walls and floors, mahogany windows and nickel silver detailed Art Deco elevator doors, as well as original exposed brick walls with contemporary Italian kitchens, glass paneled interior doors, custom bath vanities and new hardwood floors.

In 2001, Gilmore Associates teamed with Simpson Housing Solutions LLC to transform the 13-story building to a multifamily complex. The original plan included a 600-car garage and ground-level retail space.

But Tom Gilmore, a partner at Gilmore Associates, decided to replace the garage with a gym, swimming pool, public and private park space and a restaurant, apparently without consulting executives at Simpson Housing. Simpson subsequently dissolved its partnership with Gilmore. Downtown Properties stepped in, and retained Gilmore as a consultant.

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