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.

However, achieving that ideal has been elusive because there is an inherent conflict between debt and equity brokers.  Simply said, the equity broker is programmed to seek a sale of the asset from the client while the debt broker would rather that the client refinances that very same asset.  What is lacking here is a protocol that is in the best interest of the client which is identified before the debt and equity brokers begin selling their services. 

Integrating debt and equity brokers has been a challenge in our industry for years.  When compensation is tied directly to a capital event such as a sale or a refinance how can the true needs of the client be foremost in the brokers’ minds?  This inherent conflict continues to be a challenge in most brokerage houses to this day.  The goal of integrating the debt and equity brokerage disciplines can be compared to finding the Holy Grail – a never-ending search. 

The solution to this challenge does not lie in how fees are shared and does not lie solely in the hands of the client.  Often the client does not know the solution and is seeking advice in a conflicted environment.  The solution lies in the integration of the thinking between the debt and equity brokers themselves. 

The better the members of a capital markets team know each other, the better the communication – which leads to minimizing conflicts.  Often a joint call to determine the needs of the client results in the client’s satisfaction with the advice received and a broker-to-broker determination of how fees will be shared.  This can only work if the brokers know and respect each other and realize that both of them are in this business for the long term – AND THAT THE CLIENT COMES FIRST. 

Those who manage debt and equity brokers cannot underestimate the value of team interaction.  The same value that is put on a broker/client relationship needs to be put on the equity/debt brokers’ relationship. 

Fostering this type of camaraderie is just good business.

According to NAI Global President & CEO Jeffrey M. Finn, Carll will be focused on business development and service delivery with NAI Global’s Special Asset Solutions and Corporate Solutions groups in the West, as well as supporting  NAI members throughout the Western region. “Art has a wealth of experience working with clients with financially distressed real estate assets and REO, as well as corporate space users with complex real estate requirements. We believe our members and clients will get greater benefit with his skills applied across the broader regional platform.”

Carll joined the NAI Las Vegas office in December 2008 with more than 15 years of experience as a top producing agent and manager with major brokerage firms across the western United States.  Over the course of his career he has completed more than $700 million in acquisitions and dispositions, with more than $400 million specifically in multifamily transactions.

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.

First the Good News: After losing roughly 1/3 of their value since 2008, commercial real estate prices increased 2.2% in the second quarter, marking the first gain in more than two years as measured by the Investment Property Databank US Quarterly Property Index.

Investment conditions ratings for the institutional apartment and central business district office sectors each increased during second quarter 2010, according to Real Estate Research Corporation.  The tightening of lending standards in the single-family arena is seen as a strengthening development for the apartment sector.  The desire to minimize risk appears to be part of the draw of the office market, according to RERC analysis.

Recent office condominium sales have been to foreign buyers based in Asia, where economies are strong. The quality of the Feng Shui design of these buildings has reportedly been a driving factor in some of these sales.

With a bidding war prevailing for Boston’s John Hancock Tower, some see this as a signal of a possible resurgence in the market for the more predictable returns generated by trophy properties. With supply of these properties limited by a lack of construction funds, relative demand may be increasing.

Now the bad news: Excess inventory created by the CRE bubble of 2005-2007 has been accompanied by a decrease in demand amongst prospective tenants. Concerns over the economic recovery as well as high unemployment levels continue to weigh down commercial real estate prices. With bank failures and mortgage defaults increasing, and roughly $600 billion in loans coming due in the next year, serious pressures could be expected to be exerted on commercial property values in the short term.

The Long Term: Over the long term, the most important economic indicator of CRE values is unemployment. Until businesses regain confidence that there is increased demand for their products, new hiring will remain at a standstill. With unemployment continuing at historically high levels, space requirements could be expected to remain at its current low levels, and it remains doubtful that CRE values could sustain a meaningful recovery. Losses in CRE values could have the snowballing effect of further tightening already strict bank lending standards, thereby making a recovery all the more difficult.

-Jonathan Fischer, MAI

Jonathan Fischer, MAI, is a Managing Director in NAI Global’s New York City office and works with investors and financial institutions as a member of NAI’s Special Asset Solutions group.

How does an organization decide if an asset is strategic?  The following questions will help guide the discussion:

• What happens to the organization if the asset location needs to be changed such as at the end of a lease?  For example, is there a very large investment in tenant improvements such as a laboratory ( up to $300 PSF) that would be abandoned, relocated or rebuilt? 
• If a twenty to thirty year horizon is used for the financial analysis, how does the lease vs. buy analysis change?
• Can the asset be duplicated at a reasonable cost or a reasonable time in another location?
• Will my customers be retained if the asset is relocated?  Is there an element of the buying decision that is location centric?
• What are the organizations requirements for capital and does that affect the choice of ownership vs. leasing?

NAI Global provides strategic advisory services with experienced professionals who have dealt with these questions as employees of organizations who are contemplating these issues and these professionals have helped guide others in this area.

-Ted Parcel

Ted Parcel is Executive Vice President of Corporate Services for NAI Global.

There’s still a big spread between the asking and bidding price, but servicers and lenders are starting to become more realistic in negotiating the terms of debt as cap rates continue to compress forcing a slight price increase.

We’re starting to see more momentum and more traction with on the transaction side as people come to the realization that it makes more sense to execute rather than delay as situation in the marketplace continues to evolve. Trends indicate we could see large increases in transactions as we head into September, October and November with numbers accelerating near the end of the fourth quarter. We should start seeing real signs of stabilization, price recognition of real values beyond the market bottom.

We’re also seeing traditional opportunity funds that were sitting on the sidelines starting to come into the market thinking that the bottom was hit and we’re now entering a rebound. Multifamily tends to be the most popular find for investors, as existing properties with cash-flow are more predictable than other investments in the market.

Developers are starting to surface in some areas, like Manhattan, looking for undeveloped properties where they can build new residential rental and condo projects. 

-Larry Selevan

Lawrence Selevan is Chairman and CEO of NAI Chesterfield Capital Advisers, a joint venture with NAI Global providing borrowers with restructuring advisory services.

NAI Global and First Financial Network (www.ffncorp.com) have a strategic alliance that leverages NAI’s global presence in real estate sales and FFN’s unparalleled experience in the loan sale sector to support all asset disposition needs.  First Financial Network helps institutions manage risk and enhance financial performance by gaining maximum value on their portfolios through comprehensive, customized loan sale services.  Whether a one-off trade is the objective or the sale of a portfolio consisting of multiple loans is required, FFN consistently maximizes value through portfolio analysis, loan valuation, due diligence management, bid package preparation, document imaging, target marketing, closing, transfer and post-closing activities.  In addition, NAI Global adds great value to the partnership by providing local market intelligence through its 5,000 brokers in 325 offices in 55 countries.

FFN’s detailed valuation analyses and loan sale transactions are executed by industry recognized senior professionals with an average tenure of 20 years of loan sale experience serving national, regional and local banks, CMBS special servicers, private capital lenders and the FDIC.  FFN’s dedicated loan sale professionals have closed billions of dollars in performing and non-performing residential, commercial, land and consumer loans in over 28 countries.

Through the efforts of the NAI/FFN team, FFN is bringing to market a $1 billion performing and non-performing loan portfolio, secured by commercial real estate, C&I, land and residential developments on behalf of a major financial institution.  The collateral for these loans is located primarily in the Southeastern US.  And, the transaction is scheduled to close by the end of September.  If you have questions about this offering, please contact First Financial Network at 405.748.4100.

-Jerry Monash

Gerald Monash, CCIM is Executive Vice President at NAI Global.  Jerry leads NAI’s Investment Services Group and is a loan sales specialist on NAI’s Special Asset Solutions team.

Here is an actual example we helped solve; in a Florida metropolitan city a bank had a mortgage on a high-rise residential condo.  A foreclosure takes place and the bank takes title.  Most of the condo units are unsold at the time of foreclosure.  As the new sales team takes the field, a problem is discovered.  Documents disagree as to how many floors are in the building.  Some documents contended that property has 41 floors and other documents said 42.  Why? 

The reason is understandable for those knowledgeable about marketing tall buildings.  Some owners feel it is unlucky to list units for sale on a 13th floor.  So the marketing folks early on dropped the 13th floor in their marketing materials and did it in such a way that subsequent legal documents began to claim the property had 42 floors.  Physically it has 41.  Result is that many condo owners above the 12th floor are occupying a unit a floor above the one they actually purchased.  Stuff happens.  The issue is not so much the mildly humorous nature of the problem, but rather this “detail” of the number of floors in the building was not identified even though several quality law firms, two well-known title companies and multiple operational functionaries had reviewed or “worked on” the foreclosure for the lender.

As banks foreclose they must deal with multifaceted issues, and even though problems may be readily identifiable, the volume of information, the degree of coordination and depth of understanding needed to do things right simply overwhelms well-meaning staff.  

The moral of the story: Check everything as closely as possible when selling or buying notes or real estate. 

-Rhyne Brown

Rhyne Brown is Executive Vice President of Client Development and leads NAI Global’s Special Asset Solutions group, a professional real estate practice that is focused on meeting the needs of banks and special servicers active in managing distressed assets and REO.  www.naiglobal.com/sas