Demystifying (Most of) the Versace Mansion Auction
At the urging of friends and associates, I have finally entered the world of industry-specific blogging. What better way to make an entrance (I think) than to write about the recent auction of the famed Versace Mansion property in Miami Beach? So without further ado, let’s begin. . .
Lovingly anointed Casa Casuarina, the highly publicized property was sold at auction on September 17, 2013, and since that time I have been party to a flurry of discussions amongst real estate professionals regarding the sale. In this article, I attempt to dissect and explain various elements of the sale, as seen from the inside perspective of auction industry expert.
First, I should qualify my ability to speak on this topic. I am the founder and owner of a firm whose specialty is selling multi-million dollar properties at auction. To date, I’ve been responsible for the sale of more than $325 million in luxury property at auction, and have consulted or advised on nearly $1.25 billion in additional luxury property sales.
While my firm specializes in selling these properties for their wealthy owners (not on behalf of the courts, as was the case of the bankruptcy auction for the Versace Mansion) many of the core elements of the auction process are the same, at least for the sake of this discussion.
(Important Industry Side Note: This was a bankruptcy auction, and the bankruptcy process can often be very complex. I do not profess to possess a mastery of all of its moving parts. I am more focused here on the auction process itself).
Before I analyze the auction sale, let’s address a few items. First on the list: The perception of these types of real estate sales by the media. Thus far, the majority of the press I have reviewed on the Versace Mansion sale follows what I consider to be the Great Media Paradox. That is, while we all want to be happy, we all love to read bad news.
The media seems to be especially keen on this phenomenon when it comes to real estate reporting in general. As an example, look no further than Alex Rodriguez’s $30 million North Bay Road mansion sale in May 2013. Nearly all of the initial media reports focused on how much of a “discount” the sale price was to the $38 million list price, NOT on the fact that the sale earned A-Rod a $15 million profit – double what he invested in the property – in less than 2 years! Oh, and it was an all-time record price for homes located on North Bay Road. (In fairness, subsequent reports swung to the positive side and did focus on A-Rod’s big profit).
The Versace sale was not immune to this Paradox, as most initial reports – written or verbal – talked about the auction’s sale price of $41.5 million* as compared to it’s original list price of $125 million: a “huge discount,” so the stories went. (More on that list price below. *I should also note, in a bankruptcy sale, the judge must approve the price and terms. So while the property is not yet formally “sold” as of the posting of this article, sources indicate the courts should approve the sale price rather swiftly).
Next, let’s also address the nature of the process that lead to the ultimate auction result. In this case, we must first consider that the property was listed with The Jills of Coldwell Banker. The Jills are quite literally one of the most effective luxury real estate sales teams in the entire world, and they have the numbers to support that claim. Reason would stand to dictate that if anyone could find a buyer in the world who desired the Versace Mansion, it would be The Jills. As for the original list price of $125 million for the property, I would have to assume that was a pure publicity play. The Jills did not become The Jills by being foolish, and while I’m sure they knew that list price was exceptionally lofty, they also knew a $125 million list price gets more global press than a $50 million list price. Global press can deliver global buyers.
In addition to The Jills, we add the element of the auction to the equation. As many of us in the auction industry consistently prove, there are few better ways to ferret out wealthy purchasers than to offer an illustrious real estate asset at auction. While we all love a deal, the wealthy (and especially the ultra-wealthy) relish the opportunity to obtain something at a bargain price quite a bit more than the rest of us. (For a reference on the “auction attracting wealthy buyers” phenomenon, examine the work performed by the Christie’s and Sotheby’s auction houses for the past few hundred years).
In the case of the Versace Mansion auction, the required starting bid of $25 million was not necessarily a bargain price, but the type of bidders drawn to a bankruptcy auction are generally not deterred by the published starting bid amount, as they know that in these types of auctions they are dealing with a seller (that is, the creditors and courts) that are very motivated to sell. If they were not motivated to sell, the process would not have been initiated in the first place.
(Important Industry Side Note2: The Jills and the auction firm worked together hand-in-hand on the sale, and each entity earned a sales commission. Despite what many real estate salespeople may think, this type of agent-auction harmony is the method by which nearly all high-end real estate auctions operate).
Now let’s address the most important item: price. As noted above, the Versace Mansion auction generated a price of $41.5 million, a far cry from its original list price of $125 million, and even from its reduced list price of $75 million at the time of sale. There were 3 bidders at the auction: The Nakash family (the winning bidder, and also the original, majority debt-holder on the property), Glenn Straub (the owner of Palm Beach Polo and a notoriously successful distressed property investor) and Donald Trump (who needs no introduction). But what does that $41.5 million price mean? Was the sale a “big discount?”
In my (perhaps biased) opinion, the answer to that last question is No. In fact, none of the real estate veterans with whom I have spoken on this topic felt that the sale was anything other than a very successful one, if not an overpayment by the Nakash family. Let’s look at some numbers and see why that might be the case.
In doing so, let’s first remember what the Versace Mansion is: a single-family home. Numerous attempts have been made to make it something more than just a residence (ranging from a restaurant to an ultra-luxe boutique hotel), and those attempts have all failed (as noted by the South Florida Business Journal in this insightful article). In addition, zoning codes in this area of Miami Beach do not permit high rises, so the value of the land is rather limited in terms of a development perspective. That leaves us with a single-family home.
Let’s consider the location of that home. The Mansion, at 1116 Ocean Drive, is located in a very busy area of Miami Beach, where there would hardly be any significant degree of separation between the owner(s) of the Mansion (surely a “1%-er,” in the new financial parlance) from the remaining 99%. The music nearly always blares and the action is nearly always robust on this part of the beach, to state it politely. When the new buyer of A-Rod’s residence paid $30 million, he knew he’d be living in privacy and exclusivity alongside A-list celebrities and business titans. In the case of the Versace Mansion, the owner would be more likely to interact with intoxicated college kids on spring break than with Matt Damon or a hedge fund manager.
Now, how about those numbers? In general, a sale price of $41.5 million for a single-family home in Miami would have been completely unheard of it if occurred 1.5-2 years ago. But this is M-I-A-M-I, where the words “white hot” are once again used to describe the luxury real estate marketplace (not just the basketball team).
This is because within the last 2 years, the ultra-wealthy have decided Miami is hip again (or more likely, that its ultra-luxury real estate is a safe haven for their cash). As such, the Miami market has seen 6 sales of single-family homes – not including the Versace Mansion – occur above $16 million within the most recent 2-year period. This includes 2 sales at $30 million (42 La Gorce Circle and A-Rod’s former estate at 4358 North Bay Road), one sale at $38.4 million (14 Indian Creek Drive) and the all-time price record of $47 million for 3 Indian Creek Drive. While these sales occurred in Miami’s toniest areas, where privacy and exclusivity are the top priorities, only one of them exceeded the Versace price. That makes Versace – with all of the comparative downsides listed above – Number 2 All-Time.
As a TV pitchman would say, “But wait, there’s more.” In addition to ranking 2nd all-time in gross sale price, the Versace Mansion also placed 2nd on the more telling price-per-square-foot (“ppsf” or “psf”) basis, when compared to the 6 illustrious properties listed above. The Mansion achieved a value of $1,768.82 psf. On this per-square-foot basis, it was only beaten by 14 Indian Creek, which clocked in at $2,159.12 psf. (Note: These calculations assume all square footage measurements in the Multiple Listing Service and County tax records are accurate).
In summary, the Versace Mansion auction sale ranked as Miami’s 2nd-highest single-family-home sale of all time on a gross sales basis, and 2nd on a price-per-square-foot basis as compared to the highest priced single-family home sales within the past 2 years. It achieved all of this while being smack-dab in the middle of one of Miami Beach’s busiest, noisiest and most publicly trafficked areas.
Not exactly a discount from this perspective, is it?