Touchstone On Lake Muskoka, a five-star fractional ownership resort, has hit upon a novel way to sell its lingering vacation time slots, auction them off online.
Bidding began this week at the site www.TouchstoneAuction.com.
Touchstone is working to sell 75 fractional ownership positions during the auction, which is being held in three rounds between now and July 22.
Minimum reserve bids for one-eighth fractions range from $4,500 for studios to $27,500 for three- and four-bedroom villas and four-bedroom cottages from $62,500. Potential buyers have the opportunity to attend resort open houses throughout the duration of the auction.
The complete bidding package was also made available Thursday to prospective buyers, including all relevant condominium documents.
At the private, lakefront property, no more than 33 families are in residence at any given time. The resort offers families a taste of the Lake Muskoka cottage lifestyle, and with far more amenities, but without the work and upkeep of a typical vacation property.
Touchstone said it opted for the open, transparent online auction system run by Gordon’s Estate Services to allow potential purchasers to make bids from home without the “pressure” of an in-person auction process.
“This is the first time we have ever done fractional, the first time we have ever done this many pieces as well,” said Manson Slik, a real estate broker with Gordon’s.
The remaining 75 time shares represent about 25 per cent of the developer’s inventory and there was a decision to simply “make them go away” through an auction rather than stick to a slower, convention route to sell the inventory.
Gordon’s Estate Services is primarily a real estate brokerage that carries out auctions when required, he said. It has three auctioneers on staff but opted for an online auction primarily due to the nature of its potential buyer group.
“We know that the buyer pool isn’t from Muskoka, it is from two, three, four hours away,” he said. “This offers them convenience, to bid from anywhere.”
The shape of things to come?
Having a major developer resort to an auction to unload prime inventory should not necessarily be taken as a sign that vacation real estate has peaked, said Slik.
“I actually live in vacation-land,” he said. “I would say that the market for all vacation is not as strong as it was two years ago but in this particular case I would say that it is a one-off development.
“But having said that, I expect that there will be others once they see how this works out,” he added. “My expectation is that there are a number of people who are watching, in Ontario, B.C., and I bet Alberta. We may get calls when this is all finished with” and successful.
“Because it has never been pulled off before in Canada, there will be a lot of people watching.”
Condo auctions coming soon
The auction model may prove to be a winning strategy for condo developers looking to sweep unsold units of their books, Slik said.
“If the condo market flat-lines in Metro Toronto and other provinces, if it flat-lines, I think there will be some of those developers looking at it too.”
In a tight market, developers might opt for the auction route if they need to pre-sell a number of condos to get a development off the ground or, as with the Muskoka example, sell a stubborn remainder of inventory.
“If you have a 100-unit building and you have sold 75 or 80, do you want to chase the market downward over the next year or two or push them out the door when the market is what it is?” he added. “It’s like gambling, do you sit tight and try to push through it or do you push everything you have left in a market that is somewhat stable but not perfect?”
Gordon’s recently conducted a “value reset” auction in a 40-unit, waterfront condo building in Prescott, Ont., where there were seven or eight condos for sale and “nothing had sold for 18 months” with asking prices in the $280,000 to $290,000 range.
One owner decided to put his condo up for auction with bids starting at $100,000. A total of 16 bidders lined up and the unit was ultimately sold for approximately $247,000.
That successful sale broke the logjam of unsold condos, he said. “Within two months of having that auction half the units had sold at whatever the bidded valuation was.”
Gordon’s works off a five to 10 per cent buyer’s premium, depending upon the amount of work involved and the value of the properties. In the case of the Muskoka auction, buyers will pay a 10 per cent auction premium to the auction house.
“If we had just been selling nine condos in a development on the waterfront in Muskoka, we likely would have charged them a five per ent buyer’s premium. Splitting them into 75 fractions is a whole bunch more work.”
Selling condos, houses or industrial properties, Gordon’s fees are more in the five per cent range, he said.