Auction.com, which has been running live real estate auctions online since 1990, is prepping its first regional auction, and it’s a massive undertaking. The firm is scheduled to auction an offering of more than 325 Southeastern U.S. commercial notes and REO properties, worth over $2 billion, from September 19 to October 6.
Included in the portfolio are retail, mixed-use, hotel, land, self-storage, industrial, office, special-purpose, multifamily and mobile home parks with starting bids from $500 to $10.5 million.
The properties are located in Alabama, Florida, Georgia, Kentucky, Maryland, Mississippi, North Carolina, South Carolina, Tennessee and Virginia.
“It’s a monster of an auction,” says Greg Spiro, executive vice president of commercial properties for Auction.com, based in Irvine, Calif. “It really just spans the entire spectrum.”
Although it has run commercial auctions since the 1990s, for a while it focused on residential properties. In 2009, it got heavier into commercial offerings through auctioning nonperforming notes and commercial REO properties, following the end of the commercial market upturn that began in 1997, says Spiro.
Since then, the company has obtained more than 80 institutional and special services clients, and has sold approximately $4 billion worth of commercial notes and REOs.
“What we’ve really seen is a steady increase in the number of properties that special services are willing to sell for a variety of reasons,” Spiro says. “The number of troubled loans or troubled assets has grown dramatically since 2009. Unfortunately, I think that inventory is going to continue to grow well through 2012.”
This year, Auction.com “decided to start localizing things,” Spiro explains, and held its first state-based online auction of assets in Nevada in May, which was followed soon after by auctions of assets in Arizona and Texas.
At the Nevada online auction, 70 assets were offered with an 84% success rate; the 59 assets that sold at auction went for a total purchase price of over $340 million. Spiro says the overall purchase price achieved compared to the reserve prices was 115%.
Like the upcoming Southeast auction, the Nevada auction featured a huge variety of product, says Spiro. “We had a $56 million apartment building and a $500,000 gas station.” Of the properties with loans of $30 million or more, Auction.com achieved a 77.6% recovery rate, he says.
What made the Nevada auction “particularly interesting was that on very high-dollar assets, you had large institutions bidding against local Las Vegas people,” Spiro explains. “Sometimes the guy from the large institution would win and sometimes the local people would win.”
Providing a “level playing field” for buyers and being a “transparent vehicle” is part of Auction.com’s platform, CEO and co-founder Jeff Frieden said in a prepared statement. According to Maxwell Suchee, Auction.com’s public relations director, bidders can watch competitors’ bids in real time. “Increments of $1 million occurred in our Nevada auction,” he says.
The Southeast auction came about due to clients “requesting additional location-specific events” following the successful state-based auctions earlier this year, added Frieden.
But casting “an incredibly wide net” for both potential buyers and regional properties is what distinguishes Auction.com from competitors including Mission Capital and DebtX: The Debt Exchange, Spiro says.
Other online auction firms tend to focus on the institutions, but Auction.com opens auctions to all potential investors, from individuals to small groups to institutions, by advertising in the Wall Street Journal as well as local newspapers, Spiro says.
“As a result, we get institutions such as Orchard Bank, Lone Star and Goldman Sachs and local people and everything in between,” he says. “And we have private equity, so we really do hit the entire gamut.”
So far, Auction.com’s approach seems to attracting potential Southeast property buyers. At 10 days before the auction’s scheduled start, Spiro counted 125,872 web hits, 6,838 potential buyers conducting due diligence, and 425 registered bidders.
Citing a recent J.P. Morgan study, Spiro says, “We will still be foreclosing in 2020. Foreclosures will peak in 2014, and in 2016 we will see more foreclosures than we do currently.”
Dan Fasulo, managing director at Real Capital Analytics, believes the Southeast auction could provide valuable economic insights. “This year, as the primary markets got pricey, we started to see the recovery spread out to secondary markets across the country — but then this summer happened,” Fasulo says.
Because of the recent debt ceiling crisis and the “prospects increasing of a potential double-dip recession,” Fasulo says he believes the recovery may slow down.
“I think this portfolio of notes and properties could be a good barometer of how deep the demand is in secondary markets right now, coming out of a pretty volatile summer,” Fasulo says.