RECENT NEWS
Commercial real estate auctions volume starting to pick up as distress grows
2009-04-29
As fundamentals worsen in the commercial real estate market, auctions are picking up speed.
At Tulsa, OK-based Williams & Williams, there have been 20 auctions of commercial properties so far this year across about 11 states, with 17 upcoming in the pipeline, according to Dan Falls, vice president of commercial real estate. Of the 17 upcoming properties to be auctioned, 11 are in Michigan, and are mainly retail and industrial properties. The company is now in discussions with big-box retailers and potential sellers of office buildings, Falls said.
Given present market conditions “I do expect...a flood of assets, quite frankly” in the remainder of the year, Falls said. Difficult financing conditions since last fall have made selling through non-auction channels more difficult. In an environment like the present one, the definite timeline of a real estate auction is that much more appealing for owners who want to dispose of their assets quickly, he said.
“We’re just beginning now to obtain the appointments and the calls” for auction sales of commercial properties, said Lamar Fisher, president of Pompano Beach, Florida-based Fisher Auction Company. The company’s focus is institutional and court-based asset disposition. Hospitality properties – hotels and resorts – had dropped off but now the sector is beginning to come back in terms of auction volume, Fisher said. Hotel properties are trading at around 40 to 60 cents on the dollar, based on original mortgage value. A 200-unit hotel property in Dayton, Ohio coming up for a bankruptcy section 363 sale will probably trade in the 50 to 55 cents on the dollar range, Fisher said. Properties are sold as-is, with no contingencies, on a cash-only basis and there are discounts for that, Fisher said.
Rick Levin, president of Rick Levin & Associates in Chicago, said that at commercial real estate auctions four years ago, properties could trade at 80% to 90% of the original loan amount. However, in the coming year, prices could end up being 30% to 50% below the original loan amount, and in the case of vacant land where development is nowhere in sight, discounts could be even greater, at 50% to 60% or more, he said. Levin said he, too, is just starting now to see demand for commercial real estate auctions pick up. “Some of the folks I’ve been talking to for six months, they’re just now getting around to figure out how to pull the trigger and engage the auction process,” he said. On June 25, Levin’s company will auction off five former McDonald’s locations in Indiana and Illinois.
Most of the sellers who are bringing commercial properties to auction right now are owner/operators who need liquidity or are under pressure from a pending debt renewal or capital call of some sort they’re not able to meet, said Jeffrey Finn, president and CEO of Princeton, NJ-based NAI Global. Lenders are usually involved in the process, but for the most part lenders so far have not wanted to take control of commercial properties if they can possibly avoid doing so, Finn said. NAI started a series of power sales of commercial property that aggregate multiple properties. The first sale – of more than 50 properties valued over USD 150m - will take place on Friday 1 May. The sales will create price discovery, Finn said.
To date this year, the company has done a number of smaller, one-off auctions of commercial property, Finn said. In general, land has sold from 30% to 50% of peak, 2007 values, and income-producing properties have traded in the 50% to 70% of peak value range, he said. “Rents have dropped and cap rates have gone up,” he said. The math is driven by those factors in terms of arriving at new property valuations. There will be a second large commercial real estate sale on 11 June, Finn said. The first sale, on 1 May, will feature more land and the second sale will feature more income-producing properties, he said
