When Good Assets Go Bad (4/30)
Apr 30, 2009 11:48 AM, By Ben Johnson
Do I hear a bid?
While investors typically associate auctions with residential properties, many firms have been conducting commercial auctions for years. Auctions, also known as "accelerated marketing programs," provide a relatively fast way for lenders to sell off foreclosed properties. Now their services are being called upon in far greater numbers than in recent years, and several firms have formalized programs to fill the need.
Real estate services firm Colliers International announced in January it was forming a partnership with Kansas City-based United Country Auction Services. According to Patrick Duffy, president of Colliers’ National Retail Group in Houston, the joint venture has about $600 million of properties in its auction pipeline compared with less than $10 million for all of 2008.
Other firms are hoping to capitalize on the auction trend. In January, services firm NAI Global launched its "PowerSale" program in partnership with Higgenbotham Auctioneers, which has been in the auction business since 1959. The program pools many properties, which are then marketed and sold via the Internet in a series of sealed-bid auctions on a specific date.
The program benefits sellers of single properties and portfolios alike since they are bundled and marketed to a targeted group of investors. "One person with one property can get the same benefit as a guy who has a 50-property portfolio," says Jeffrey Finn, president and CEO of NAI Global based in Princeton, N.J.
NAI’s first auction included 50 properties in 22 states and was expected to be complete on May 1. The next auction occurs June 11 and Finn expects to conduct them every six to eight weeks.
So does it work? "What’s fascinating to me is the brokers are saying they’ve had listings for six to nine months, and when they put the auction sign up people come out of the woodwork," says Finn.
"[Brokers] are finding the phones are ringing off the hook and all of a sudden you’ve got everybody looking for an opportunity," adds Finn. "Now is the time to get in because on the other side of the cycle prices are going to jump."
Irvine, Calif.-based real estate services provider Sperry Van Ness (SVN) launched its own version of the auction process, dubbed "ART" for asset recovery team, in the fall of 2008.
"The problem with a traditional sale is that you identify a buyer and he has 30 days for a free look. Then he comes back and renegotiates," says Joseph French, regional director of SVN’s asset recovery program. "Accelerated marketing provides the lender with certainty of close, and it allows the lender to move the project off his books and move onto the next deal."
Ultimately the goal of receiverships and auctions is the same — to provide relief to the borrower and the lender.
In the case of Crossroads Mall in Oklahoma City, relief may come in the form of new ownership and a totally new game plan for the property, says Parrack of real estate services provider Price Edwards & Co. "Sometime down the road, someone may want to tear the whole thing down."
Ben Johnson is a Dallas-based writer.
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