As if the pace of investment sales of retail real estate properties weren't already frenetic, noware coming up with new methods to accelerate the action. The new systems include a hybrid sealed bid/live auction setup from Sperry Van Ness and an online “trading floor” from Faris Lee, called FLI Exchange. Both are billed as ways of taking time and money out of the sale process, especially for smaller properties.
In the Sperry Van Ness system, the seller can get a speedywithout going through a straight open auction. The seller determines a minimum price for the asset and potential buyers are solicited and given time—60 days for example—to look at the numbers and review the property before coming up with a written proposal. The top five bidders then advance to a live auction using the highest bid from the written proposals as a starting point.
"Establishing a minimum bid requires the purchasers to do their due diligence, so when they submit offers they represent hard offers with no contingencies and with non-refundable deposits," says Louis Fisher, a broker with Sperry Van Ness' Accelerated Marketing Division. Fisher’s clients include Developers Diversified Realty, which has been selling assets via this process for about a year.
Recently, the REIT brought two centers to market for this process: the 167,474-square-foot Arrowhead Point in Harrisburg, Ill., and the 184,331-suqare-foot West Town Plaza in Union. S.C. Minimum bids on the properties are $5.4 million and $5.5 million, representing 13.6 percent and 10.8 percent cap rates, respectively. The list-to-close period using this method is 90 days.
One of the big advantages, says Fisher, is that these deals don’t boomerang. "Typically assets go in and out of contract three times," Fisher says. "This method means they go through one time."
Fisher says the process works best on troubled assets that are hard to value, but can an also be used on stable, fully-leased assets. Sperry Van Ness closed $300 million in transactions through its accelerated marketing division in 2005 (which also includes traditional auctions), up from $100 million in 2004.
The idea behind FLI Exchange is similar in that it is geared towards accelerating the sales process for buyers and sellers, especially 1031 exchangers who have a fixed deadline.
Buyers or their brokers--even those not affiliated with Faris Lee--can visit the exchange online or by going their directly, lay out a parameters for what they are looking for and see if they can find a match among what's listed.
Prospective buyers lay out their minimum and maximum prices, cap rate range, available cash, desired leverage and location. The outline is broadcast to all brokers in the room at the same time. A broker who has a listing that matches the requirements can respond nearly instantly.
"Anyone can come in, even other brokers. And they don't have to reveal their clients," says Rich Walter, president of Faris Lee, a retail investment brokerage based in Irvine, Calif. "And this hits all our brokers at the same time, so it's not going to bring back listings exclusive to one broker."
For it's part, Faris Lee is relying almost exclusively on properties from its database, only occasionally going outside its pool. One of its brokers gets assigned to the deal and gets a commission if a deal is closed.
-- David Bodamer