If you believe in market efficiencies, the going rate for downtown Austin residential real estate is about $277 per square foot. Today in Austin, 19 remaining units of a re-purposed residential building on 8th and Brazos were auctioned off as-is, where-is by Kennedy Wilson. Over 300 bidders participated. Bidders were required to have been pre-approved for financing with 25% down and bring $2,500 cash to the auction (in the form of a cashier check). I am of the opinion that the bidders as a class roughly represented “the market”.
Here are my take-aways from the live auction (with too many caveats to list, the biggest being that I am assuming all units were more or less of like kind and value on a per square foot basis): (1) There was a lot of a volatility in the first few units auctioned and the last few, the middle being most representative of “the market”. This was because at the beginning there wasn’t enough data points and the bidders at the end were influenced by urgency. (2) The biggest losers (measured as those who paid the most above average on a per square foot basis over similar floor plans) were all involved in bidding wars. Those who waited had better opportunities once the aggressive bidders had won an auction and were out of the pot. The best example is 1107 and 1007; a losing bidder on 1107 won 1007 for $60,000 less for the exact same unit but one floor lower. (3) Having a reservation price is obviously a must, but there is a lot more to it than that. I kept a real time log (see image) of sale prices and price per square foot. I was amazed by how few people seemed to be doing this. The +/-800 square foot one bedroom units went for $276, $288, $293, $257 and $308, in that order. That is a ton of volatility for roughly equivalent units. Clearly the bidder at $308 over paid (again, I am not taking into consideration personal preference) notwithstanding the fact that he had the most data points!
It was clear as the developers high-fived each other a la Trading Places that this was a win for Brazos Place and Kennedy Wilson. My understanding is that the average per square foot sales prices downtown over the last few years has been around $300. That would mean we’ve experienced only a 7.5% drop in prices, which is way under the national average. The market has spoken and what it said is that Austin downtown real estate prices are holding up relatively well. It appears that Austin is still on the up even if the job market is on the down (best of luck to my UT Law classmate Stephen Anderson).
Ed. note: A 4% buyer’s premium should be added to the final price listed to determine the actual purchase price of the units except for the PH.
