The trend of selling off distressed property has strengthened the presence of auction companies in the real estate business in US. The focus is on how feasible it is for auctions to make a wider launch into the regular real estate sales.
According to Stephen Karbelk, who is the founder and co-chairman of AmeriBid LLC in Reston, Va., a considerably higher number of investors are selling or purchasing properties through auctions compared to three years earlier. He further asserts the method is becoming more accepted.
The gross capital made by auction companies is considerably high. As at 2012, auction.com which is currently the leading real estate auctioning site, recorded transactions of $3.6 billion and still performing strongly as at 2013. Recently, 49 real estate properties situated across 24 states were auctioned off for over $133 million at auction.com within a week. Four huge auctioning events have been scheduled by auction.com to hold in June and July. Another massive auction that is expected to gross between $350 million and $400 million in property sales is slated for the end of July.
The aspect of auctioning real estate properties relies heavily on distressed property deals. Although the volume of distressed properties that are available for sale is rapidly declining, there is still a reasonably large supply of such distressed assets available. Based on data from the New York based Real Capital Analytics,about $51 million worth of REO properties and $158 billion of distressed real estate assets are still available for commercial purposes. Those estimated figures account for about 40 percent of the accumulated troubled mortgages worth a total of $399 billion.
As the demand for distressed property begins to decline, businesses engaged in auctioning such assets are seeking out new ways to counter competition and still generate revenue. Some companies have chosen to try out new places. A new division called AmeriBid Caribbean was recently launched in San Juan, Puerto Rico, by AmeriBid. The company founder Kalberk, estimates that Puerto Rico has about $2 billion in bad real estate loans. About 100 to 150 properties situated in Puerto Rico are expected to be auctioned off by AmeriBid Caribbean in its first auctioning event scheduled to hold in September. Other asset auctioning businesses are venturing into non-distressed asset sales or market-rate properties, to generate revenue.
Snapping up More Market Share
Regular consumer or capital items such as wine, cars and art have been more traditionally sold through auctioning. When it comes to commercial real estate auctioning, it is only considered as a means to sell off distressed properties not for mainstream asset transaction. Eric Paulsen, commercial division president of auction.com further asserts this view of auctioning being perceived as a means of transacting on distressed properties only.
The commercial division of the leading site, auction.com, concentrates most of its efforts on distressed properties being sold off by lenders, banks, special services, and other sellers with their unique reasons for giving up the assets. To reach a higher number of institutional real estate asset owners, the company expanded its business efforts in 2012. According to Paulsen, achieving that will be a better market evolution from distressed asset focus.
An increasing number of mainstream companies are buying into the real estate auctioning niche. This is evidenced by the number of companies auction.com has sold properties for, and they include General Growth Properties, Blackstone, Kimco Realty, GE Capital and Gramercy Property Trust.
Changing the general perception that auctioning is merely a means of selling distressed assets, is the greatest challenge faced by the niche. According to David Nachison, who is the senior managing director of HFF in Washington, D.C., lenders are usually involved in all the regular mainstream assets auctioned. That fully asserts the current situation of real estate auctioning being confined to distressed arrangements only.
Changing the Limiting Perceptions
It is usually assumed that real estate auctioning will give room for self-seeking bidders as perhaps, there would be few bidders or non-aggressive bidding. This is not always so. As noted by Nachison, when it comes to mainstream quality properties in markets with high prestige and demand, some auctions there still get good pricing and normal market rate in some instances.
HFF has successfully handled both online and live real estate auctions. Its first was a live auction for The Palatine apartments in Arlington, Va. Conducted in 2010. It was a live foreclosure auction which saw the 262-unit class A apartment buildings go for $118 million or $450, 382 for each unit. The auctioning event was attended by 10 qualified bidders who were required to have a $9 million certified check in order to register for the auction.
These show that high market quality real estate assets can be sold at auctions. In 2012, the highest value third party foreclosure transaction was done by AmeriBid when it sold a parcel of land for $28.7 million in Maryland. Kalberk asserts that even high value assets can be sold at good prices at auctions.
Currently, auctions happen in a variety of methods which could be online, live or a combination of both modes. Paulsen notes that technology has helped ease up the restrictions on the auctioning niche to make it more flexible. Auctions were more limiting and the bidder had to be physically present to partake in the bidding process. Even the marketing was limited so only few bidders were reached by the local paper ads usually used for it.
The presence of the internet has greatly increased the reach of these auction events. Auction.com owes its expanded reach to the impact of technology. The site now has bidders from the comfort of their business or home bidding on even baseball games and cruise ships. With technology, more options to bid on are made available for potential bidders, according to Paulsen.