So, what has occurred since then? What sectors are hot?

From February 2009 to June 2010, 102 multi family properties were sold at auction and the variance between asking and sell price was 90%. From July 2010 to April 2011, the variance was 82%. More sales occurred however, with 132 multi-family properties with a total value of over $2 Billion sold at auction in just a ten month period.

The number of office properties sold at auction increased significantly. While only 108 office properties sold at auction during the February 2009 to June 2010 timeframe, the number increased to 202 sold during the recent ten month timeframe. The total dollar volume was just over $1 Billion. During the earlier period, the variance between asking and sell price was 75%. The gap closed during the most recent period, with average asking versus average sell at 99%. The data suggests that the overall average does not reflect steady monthly occurrences but rather sharp peaks with average sales prices surging in some months and dropping in others.

Industrial/flex property auction sales are up as well. Last year, when we compared half year 2010 sales to 2009 sales, we found a ten percent increase in number of transactions brought to market. During the entire earlier period, 132 industrial/flex properties sold at auction and average asking price to average sales price was 65%. When we look at just a recent 10 month period, the number jumps to 174 industrial/flex properties valued at just over $300 Million traded at auction. Prices during the earlier period were becoming more aligned and have continued. The former data showed a slight increase in the variance between asking and sell price, or 67%. Of interest is that the gap has narrowed in the most recent 10 month period with average asking to sell prices showing a variance of just 81%.

Retail property auction sales are also up. Retail properties being offered for auction dropped by more than 40% during the first half of 2010 as compared to the last six months of 2009 and were 20% less than the first half of 2009. During a 17 month period, 341 retail properties sold at auction and the variance between asking and sell prices at 70%. More consistency is found over the recent 10 month period when 299 retail properties with a total value of $1.1 Billion were sold at auction. We witness sharp peaks with high average selling prices surging in some months and dropping in others, with overall “average prices” suggesting a gap of just 1% or a variance of 99% when comparing average asking to sell prices.

While we had not considered land sales at auction last year, there were 191 transactions with a total value of over $1 Billion during the July 2010 to April 2011 timeframe. Average sell prices were 65% of average asking prices.

NAI Global has also witnessed increased interest in auction sales, with greater activity in sealed bid PowerSale, live and online auctions programs over the same period.

To learn more about NAI Global’s accelerated marketing program, visit www.naiglobal.com/powersale, or contact Patricia Faulkner at pfaulkner@naiglobal.com.

• We haven’t built anything in the U.S. since mid-2007, and except for some apartments we are not going to build anything significant for another two to three years.
• Existing space is being filled at rates 20-30% lower than 2007.
• Commercial real estate is not the next shoe to drop – you don’t have destruction without oversupply and we don’t have oversupply.
• There is a direct correlation between filling of buildings and the end of pretend and extend – until now banks have been able to defer dealing with issues but when buildings are filled they have no need for the owner anymore. This will lead to what he calls “delusion is the solution deals.”
• There is not a market yet and we have an overleveraged scenario because of 0% interest rates.
• There are a lot of assets that in another arena would have been REO; banks are feeding properties into the market very slowly. If you keep supply short, you can keep prices high.
• For owners who overleveraged their real estate this has been a disaster but he doesn’t see any real bargains out there and doesn’t see that changing. He hasn’t swooped in and bought at 20-40 cents on the dollar as was the case in 1990-91.

Bliss Morris, an expert with the nation’s leading loan sale advisors, First Financial Network, appeared on Squawk Box the same day and had this to say:

• The numbers for loan sales are going to double this year. In 2010, $26 billion in various loans were offered for sale with about 50% selling.  In 2011, that number will jump to $50 billion and Morris anticipates about 70% will be sold.
• There is a disconnect between financial institutions and buyers in the sense that the institutions took time to write down that debt. This year we expect the ratio will go up to about 70%.
• Bankers they work with understand the value of their assets – it’s just a matter of time when they can write it down to where book value matches market price and there can be a clearing. Once we see that clearing, more recovery will take place.
• When asked whether anything could derail the current recovery, Morris indicated that she was cautiously optimistic – a glass half full sort of gal. In 2008, the failures were mostly residential. Now we are starting to see commercial failure, but good news is on the horizon. Morris cited a recent announcement in CMBS with the least percentage uptick in delinquencies of loans at about 5 basis points.

How has the auction landscape changed over the past twenty years? We are now light years ahead, with an ability to sell properties more quickly and also expose them to a far broader audience of buyers. All of this can be attributed to online technology. Twenty years ago there was no online bidding, or online access to due diligence, and the only access to persons who could answer questions about a property or provide market intelligence was via phone or fax during “regular” business hours.

Today, not only can real estate be sold online, all of the information regarding the property is available online as well. Prospective bidders go online and download virtually all pertinent information to enable them to intelligently bid on a property. Technology allows one to view properties – frontal, aerial, floor by floor and in 3-D. A bidder does not need to physically visit a property to understand the complexity of the asset; however some auction companies have bidders acknowledge in writing that they have visited the auction property. Bidders can communicate online 24/7 with customer service for most auction companies and receive answers to questions and additional collateral immediately and most times for free. Gone are the days of sending (and charging $50 plus) bulky packages and having war rooms set up prior to an auction so bidders could pour over volumes of paper documents and rolls of plans to become familiar with a property being auctioned.

So how has technology affected auctions? Today, more properties can be efficiently auctioned and the speed of the auction process has accelerated. Think about it – twenty years ago vendors working with the FDIC and RTC (the two largest sellers of distressed assets via auction) could not even communicate via email with either agency because the government entities were on internal email only systems. Today, every auction company uses the internet for almost every aspect of the auction – advertising, promotion, access to property information and even online bidding. Auctions are up over 40% over the past 20 years and likely to increase as more distressed assets are available for sale via auction.

Higgenbotham Auctioneers, NAI Global’s alliance partner for outcry auction services has found that combining the traditional live auction process with simultaneous online bidding has been very successful. “During the past couple of years, we’ve found that most serious bidders will attend a live auction. However, in this day and age, some bidders are utilizing the convenience and efficiency of the online bidding process. The simultaneous internet bidding allows the bidder to bid in real time during the live auction” stated John Haney, General Manager for Higgenbotham.”

Technology has changed the landscape and we have to utilize it and adapt to it. Auctions are more visible in the marketplace now than perhaps they ever have been. When choosing how you are going to auction a property, consider what process is going to bring the most bidders to the table for your seller and generate the most value for the asset. Keep in mind that it may be an online auction, a combination of outcry and online auction or even a sealed bid sale utilizing the same technology up to the point of bid submission and post bid negotiations. Each provides unique benefits and can be designed to meet the specific needs of a seller.

-Patricia Faulkner

Patricia Faulkner is a Senior Vice President and auction specialist on NAI Global’s Special Asset Solutions team.

John Haney, General Manager, Higgenbotham Auctioneers, indicates that he is seeing more bank-owned properties being offered for auction. In fact, they’ve had more activity with bank-owned properties in the past 90 days than they’ve seen over the last few years.

They are seeing this nationwide, and not just in Florida where Higgenbotham is headquartered. However, in Florida, they are marketing a portfolio of 75 properties for a Florida-based bank to close by year end.

Haney is also seeing an uptick in overall activity at the auction sales. He attributes this to seller and buyer expectations becoming more aligned. In the past few years, there were few or no buyers for some properties and that is changing. During a recent auction for Wal-Mart Realty, there were between 8-10 active bidders for each property. About a year ago there may have been less than half as many bidders. In ballroom sales, where a year ago a crowd might consist of approximately 50 bidders, Higgenbotham now gets about 150 bidders. They are seeing more faces and good bidders. Sellers have finally become more realistic and have accepted current market values. They are no longer hoping for the prices they saw in 2007.

Haney indicates that sellers who also offer financing are likely to have a larger number of more serious bidders for their property(ies). He mentioned a large auction in Georgia that they are currently marketing. The seller is offering no-interest financing with a five year balloon. Buyers need to have a 20% down payment.

What does Haney forecast for the year ahead? He believes the trend that has started during the later part of 2010 will continue. He suggests that we’ll see an increase in the amount of actual transactions. Likely sellers will include sales from bankruptcy courts, banks and also from corporations that want to take advantage of the time value of money. They’re looking to take the money now and use it elsewhere in their operations. Haney counsels sellers to sell now if they have an alternative investment in mind – “what’s the difference in selling in November 2010 for $1M or waiting and selling in March 2011 for $1M? Take advantage of the time value of money and let your money work for you.”

-Patricia Faulkner

Patricia Faulkner is a Senior Vice President and auction specialist on NAI Global’s Special Asset Solutions team.

What follows is a straight forward guide to aligning with a partner and getting started with a sale to achieve maximum exposure and the highest possible return for a seller.

Pricing

Has the seller reviewed a current Broker Price Opinion? Sellers often look at an accelerated marketing program as a way to test the market. How wrong! Review a current property evaluation survey completed by a local advisor who will present solid facts and a current financial analysis. From the findings presented, determine whether the property should be sold absolute or with a reserve price. Sellers may wish to discuss the analysis with your lender should the value far below your debt balance. Maximum value can be diminished if reserves are set too high in an accelerated marketing environment.  Buyers are aware when sellers have set unrealistic prices. They sense that the seller is unmotivated and do not take the sale seriously.

Project Team

Ask firms you are considering to provide a written proposal.  The firm and its team must be prepared to meet a seller’s goals!  No matter how persuasive their references or presentation appear, chemistry and synergy are essential.  To insure a coordinated collaborative environment, request a single source full time project manager, both knowledgeable and responsible for all functions and communication.  Ask them about their reporting system and the frequency of updates during the sale. When meeting the project leader, request names, backgrounds and responsibilities of each team member.  The team must demonstrate that they have the experience with similar sales and a solid plan to take your sale from start to finish within the timeline set. Consider firms that have a verifiable track record of past and recent sales of similar assets.  Generic references from non-related industries should not complete your vendor selection due diligence.

Marketing Plan

Accelerated marketing provides a highly targeted marketing campaign to broaden the exposure of the asset. Marketing dollars from all properties in the sale are leveraged to create a larger, more robust marketing budget. Before commencing any project, have an agreement outlining the responsibility of the sale advisor to implement the plan.  Valuable time and breakdowns in critical function occur when either party lacks clarity on each other’s role from concept to completion.  There are dozens of functions and variables to be addressed. Ask for a detailed marketing plan including advertising and media sources and regularity of placements. A marketing plan should include details on property signs, brochures, print media, direct mail, email, telemarketing, electronic and social media, public relations and property due diligence packages. If an outcry auction is the selected method of sale, details on auction day sales coordination and staffing must be addressed.

Executing the Sale

Maximum asset value is derived from the right strategy and flawless execution.  Sellers should know their options up front and be prepared to make decisions in an “accelerated” fashion. Each offering is unique, and one seller’s strategy may not work for the next with the identical assets.  Plan together, stay on course and trust your sale advisor.  Once the selection has been made and the team strategy tactics and scope of services begin, it is critical to maintain trust and stay the course.  If the decision agreed upon was a date-certain sealed bid sale after sixty days market penetration, stay the course. Sellers may receive pre-emptive bids from buyers prior to the date of sale. If the sale advisor stresses the asset is important to the offering and interest has been exceptionally high, rely on their advice.  If an advisor reacts to real time changing market conditions and recommends fast sales or changing the asset stratification, allow their guidance.

Remember, they are working in your best interest and want to achieve optimal asset value!

-Patricia Faulkner

Patricia Faulkner is a Senior Vice President and auction specialist on NAI Global’s Special Asset Solutions team.

I was referring to the price attained at auction (cents) versus peak value, or 2007 – early 2008, (dollar) and we seemed to be on the same plane. After leaving the meeting I thought back to the OREO manager and thought “good question.” There are several ways that “the dollar” can be defined.

A recent blog promoting building lots in North Carolina proclaimed “Land Sale 10 cents on the Dollar,” and referred to the dollar as the “former cost.” The article mentioned a date range of 2005-2006; likely this was peak value for them.

Back in the RTC days, and during the savings and loan crisis, cents on the dollar meant recovery value as it related to the book value of the asset. In a recent news article about the sale of an office building in Charlotte, North Carolina, the headline read “Office Park sells for 30 cents on the Dollar.” It went on to explain that the park sold for $42 million and explained that the original loan was $120 million.

An example of how “the dollar” refers to future value came from an article about the sale of an investment property in Indiana. The article provided a cap rate, described the repair costs necessary in order to get the property into rentable condition and provided some very recent comps.

On improved land sales I’ve found that some people consider the total original purchase price or loan value plus down-payment, then add on soft costs, as well as their cost toward any partial improvements completed as their “dollar.”

An appraiser may consider “the dollar” as fair market value, orderly liquidation value or forced liquidation value. “The dollar” can be defined differently by buyer, seller, lender, developer, appraiser and yes, even real estate brokers.

As a rule of thumb, it never hurts to ask the person providing the “cents on the dollar” comparison to “define the dollar” they’re talking about.

-Patricia Faulkner

Patricia Faulkner is Senior Vice President of Client Development at NAI Global and an auction specialist on NAI Global’s Special Asset Solutions team.

Though the residential market is already feeling the impact, the long-term effects of the oil spill are still unclear. The hotels industry in beach towns along the Gulf may suffer with the perception that those beaches are contaminated. And the fishing and shipping industry so dependent on that waterway are already feeling the impact, but may be able to return to ‘business as usual’ if the spill is effectively cleaned up.

A major commercial and residential developer in the Florida Panhandle with hundreds of thousands of acres of land noted on their website: “We will continue to collaborate with governmental agencies to monitor and manage the situation while also taking significant steps of our own to protect our assets. We are also working closely with environmental experts and have deployed resources to monitor, evaluate, document and take immediate actions. As of this time, we have not experienced any direct impact from the oil spill but we are in a position to execute an expedited clean-up of our beaches in the event it is necessary.”

On May 19 the heavy oil hit the Louisiana shore. On the same date, it was announced by the U.S. government’s top weather forecaster that a “small portion” of light sheen from the giant oil slick has already entered the Loop Current, which could carry the oil down the Florida Keys, to Cuba and even up the U.S. East Coast. While the oil giant has to date drilled two relief wells, each of these wells is estimated to take some three months to complete from the commencement of drilling. The latest plan is to develop a “top kill” operation where heavy drilling fluids are injected into the well to stem the flow of oil and gas and ultimately kill the well.

Rich Stone, CCIM, and senior sales and leasing associate at NAI Latter & Blum in New Orleans, indicates that right now the greatest impact has been on the fishing industry and the environment. “We’re waiting to see when it will stop spewing oil and where the oil currently in the Gulf ends up. It’s just too early to tell, but so far we haven’t seen any immediate adverse effects on property values.  New Orleans doesn’t have the beachfront property and resorts found in other Gulf Coast cities. In addition to impacting the fishing industries, we could also see more serious impact on local oil sector employment due to possible migration of the BP oil into the area of other platforms, causing further interruptions or shutdowns.”

Bernie Heggeman, SIOR, Principal of NAI Heggeman Realty Company in Mobile, AL echoes Stone’s comments on New Orleans. “The whole estuary and marsh system in Louisiana is the most priceless nursery for seafood in the entire Gulf Coast region. It is easier to clean up sandy beaches than the tremendous marsh system that produces so much of the regions’ seafood. That system simply can not be replaced. As for Mobile, the oil is still 30 miles off the coastline and based on current trends of wind and tidal movements, it is staying away from our area. Equipment has been put in place on our coastline in preparation for the worst. In my opinion, before the summer is over, the commercial and residential resort markets are going to feel a negative impact on values. Even if our area is spared for the time being, the possibility of a hurricane coming into the Gulf of Mexico this summer could potentially cause a disaster dispersing the oil contamination over the entire Gulf Coast from Florida to Texas. This season’s hurricane forecast indicates an increased probability for storms.  Aside from what might occur, there has been a temporary economic stimulus as BP has pumped a lot of money into the area by hiring local fisherman, those impacted the most, to assist in the cleanup.”

In Pensacola, John Griffing, SIOR, President of NAI Halford, said they have seen no oil on their coast. “BP has a big presence in Pensacola and is staging cleanup equipment here. They have also relied on our local charter fisherman to help them in their clean up efforts. The spill has really had the greatest impact on the local resort industry but it boils down to a perception problem. People perceive that oil will affect the area and are therefore canceling their plans and going to other southeast beaches, such as Myrtle Beach. As President of an upcoming SIOR chapter conference scheduled to be held in June at the Villages at Baytowne Resort, in Sandestin, FL, it is disturbing to see that attendance has been impacted due to this perception.”

Far too many variables play a role in predicting the coastline(s) that will be affected by the spill. I have read that the Loop Current is so strong that it could pull the oil from its current path and bring it up the East Coast, to as far north as the Carolinas. One thing is for sure, this is not a passing problem. I urge anyone in the real estate industry witnessing the effects of the oil spill on property values to comment and share what they are seeing. This is a relevant topic today and may be for months or years ahead if a solution is not found immediately.

-Patricia Faulkner

Patricia Faulkner is a Senior Vice President and auction specialist on NAI Global’s Special Asset Solutions team.