Loss Leader?

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Grocers mark down the price of roast beef and advertise it. They figure customers will buy peas and potatoes at regular prices once they’re in the door.

Likewise, car dealers discount one auto assuming that some customers will buy a full-price model once they come to the lot.

The concept has rarely been used in real estate, however. But Harry Dubin pulled it off at the beginning of the month in the face of stagnant sales at the Solair Wilshire condominiums in Koreatown.

And he’s claiming success.

Dubin, a marketing consultant, staged a weekend sales event with prices slashed 30 percent on some units. The stunt attracted more than 500 potential buyers, yielded 20 quick sales and breathed life back in the Solair Wilshire luxury condo tower project.

He said the low-price units got people in the door, much the same way as cheap roast does.

“My philosophy was to bring different racks onto the floor some at 30 percent off, some 10 percent off and some nothing off,” he explained.

A one-third cut in selling price could normally turn a builder’s profit into a significant loss, but the developer of Solair Wilshire, Koar Wilshire Western LLC, OK’d the concept and approved each sale.

The Solair Wilshire is a 22-story tower with 186 luxury condos and 40,000 feet of retail space at the base. Prices range from $800,000 for two-bedroom units up to $2 million for the penthouses unchanged from the peak of the market in 2007.

The 30 percent-off sale on the lowest-price units dropped the minimum entry point to $560,000 closer to today’s market value for comparable units. Also, Dubin acknowledged that the 30 percent discounts were only offered for the lowest-price units.

Sixteen of the 18 low-price units sold. Four higher-price units sold, and that proved the concept was a success from the developer’s point of view, despite the discount.

“They haven’t taken a 30 percent haircut on anything except those units,” Dubin said. “The developer was very happy with the results of this sale.”

Developer Koar Wilshire Western is a partnership of Beverly Hills real estate investors Bruce Rothman and Laurent Opman of Koar Institutional Advisors LLC and Christopher Pak, owner of architecture firm Archeon International Group.

Two partners of the development firm, Pak and Rothman, declined to comment for this article.

Besides reviving the sales momentum of Solair Wilshire, the two-day sale assured completion of the project’s construction.

The development has two phases. Bank of America and Wells Fargo extended construction loans for only Phase I lower-price units on lower floors, and the high-end upper floors. Financing for the middle section of the building was conditional on sales of a certain percentage of those units.

Dubin declined to cite the percentage, but he said the sale allowed the developer to reach the threshold and qualify for Phase 2 financing, meaning it can build out the remaining floors. He said 45 percent of all units in the building are now sold.

The Solair Wilshire wasn’t Dubin’s first foray into off-the-wall marketing strategies. In 2007, he created a fictional character for the Rob Clark, a condo building near Robertson Boulevard and Clark Street in West Hollywood. Rob Clark the character was a mysterious, celebrity-friendly playboy who was designed to personify the lifestyle of the development’s residents. Rob Clark the character never appeared anywhere, in an image or as an actor. However, he’d throw a party and not show up, or send gifts to prospective buyers.


‘Live Free for a Year’

With condo sales slow in many parts of the country, other developers are taking cues from the retail sector, said Stephen Kliegerman, executive director of Halstead Property Development Marketing in New York.

Kliegerman has seen “live free for a year” deals, where the developer covers the mortgage and condo fees for 12 months before loan payments start. Other developers offer price-protection programs: The developer will buy back the property if it doesn’t appraise at a fixed value in five years. Some developers even offer buyers model units with furniture included at no charge.

Some of those strategies can pose legal risks for developers, warned Camellia Schuk, an expert on condominium law at the Orange County office of Cox Castle & Nicholson LLP. Depending on the case, regulations may require the down payment remain in an escrow account for years, prohibiting the developer from accessing that money if they guarantee a five-year appraisal.

Dubin is following up the sale by running down the list of contacts, which includes interested buyers from South Korea, Taiwan, China and the United States. But the sale accomplished its primary goal.

“It wasn’t just about price but traffic,” he said. “The project needed a kick start and momentum.”

Dubin and Kliegerman agreed that whether it’s roast beef, a car or condo, consumers are looking for a bargain.

“Everyone wants to feel like they are getting a deal,” said Kliegerman. “Developers understand that, so if they reduce prices, they can make you feel like you got a deal.”

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