On Feb. 8, auctioneer William Stevenson, president of Los Angeles-based Intelligent Market Systems, plans to simultaneously sell 79 residential lofts in an Internet auction. The lofts are located in a former office building in the heart of the city’s historic financial district. Stevenson, founder and former president of auction firm Kennedy-Wilson Inc., has conducted such high-profile auctions as the $411 million sale of six Landmark Resorts golf courses and hotels for the Resolution Trust Corp., and a $200 million sale of long-term contracts for Shell Chemical. Stevenson’s real estate brokerage company, William Stevenson and Associates, has the lofts listing and is also conducting the auction.
The auction will be held at The Rowan, a 13-story building in downtown Los Angeles. Bidders will be able to see the current bids on large screens and they will have the option of viewing bids and participating from home or other remote locations by computer via a secure Internet site. The upcoming auction is unique in the large number of units that will be sold simultaneously on the Web rather than in traditional sequential fashion, which offers one item at a time, Stevenson says. He spoke with NREI about the upcoming Internet auction.
NREI: How will the auction be set up?
Stevenson: The Rowan Building, built in 1911, has been developed into condominiums and ground floor retail. We’ll conduct the auction in that retail space. Bidders will be able to see the amount other buyers are bidding for every property during the entire auction on large bidding screens at the auction site or on their computers. People at the property don’t have to have a computer; we’ll give everybody a paper with their bidder number on it and they’ll write in the unit number they wish to bid on and the amount. We’ll have a runner take it up to our data entry people who will enter it into the computer and they’ll see their bid pop up on the screen.
NREI: What are the financial arrangements?
Stevenson: Bidders must be pre-qualified for a loan from the seller’s preferred lender, and put down a deposit. They will be issued a personal identification code to use during the bidding process. We advise buyers to tour all the units in their price range before the auction. We already have 50 people that are prequalified and preregistered to bid.
NREI: What software will the auction use?
Stevenson: The auction uses our proprietary Intellimarket Internet Auction System. The software was developed by Nobel Prize nominee and California Institute of Technology professor Dr. Charles Plott, my business partner. We met in 1994 when I was still with the company that I helped found and took public, Kennedy-Wilson. Dr. Plott and I had both been hired by the Federal Communications Commission to help them develop auctions for the airwaves for broad and narrow band. I left Kennedy-Wilson in 1996 and partnered up with Dr. Plott and we created a company called Intelligent Market Systems. He developed the technology that we now use with computers and the Internet. You can see it at www.therowanauction.com.
NREI: What’s the advantage of holding a simultaneous auction?
Stevenson: We were conducting auctions the way everybody’s used to seeing them, in sequence. In a sequential auction, the auctioneer stands up and says, “We’re putting the first loft up for sale,” and starts the bidding and he keeps chanting until the bidding stops. We call that a continuous auction. No matter what sequence you put the homes in for sale, a number of people were unhappy because in most auctions they have a preference in terms of the order. If they can’t win the bid for unit five, for example, they’ll take unit two. But it may already be sold. Dr. Plott thought about it and said, “Why don’t you try a simultaneous auction?” Buyers felt there was too much pressure with a sequential auction. The continuous system is much quieter, and you’ve got at least five minutes to decide what you want to do if you’re not the current high bidder. So it’s more buyer-friendly.
NREI: How does the process work?
Stevenson: When the auction starts, all 79 units will be up for bidding. There will be a number of big screens and we’ll project up onto the screens all the units. Once the bidding starts, if someone outbids a buyer and the price becomes too expensive for a particular unit, the buyer can move their bid to another unit. Anytime you’re outbid you’re free to shift your bid to any of the other condos in the auction. Displaying all the bids gives the process complete transparency. Participants know exactly what the bid is on everything, and they know how much they have to offer to become the high bidder on the property they want most.
NREI: How much time do they get?
Stevenson: There is a clock and when the auction starts the clock starts counting down. Every time anybody starts bidding on anything, the clock resets to five minutes. When nobody bids on anything for five minutes, then the auction ends.
NREI: What is the opening bid range?
Stevenson: The opening bids range from $195,000 to $490,000, depending on the unit. The unit size varies from studios at 550 sq. ft. to two-bedroom, two-bath units at a little over 1,400 sq. ft. The average size of the units is about 850 sq. ft.
NREI: Will you be conducting the auction as well?
Stevenson: Yes, as a sort of master of ceremonies. You don’t really have anybody up there chanting, there’s no chanting to do. Everybody sees the bids and they know that the minimum bid increment is $2,000. The current bid on all 79 units is always up on the screen on a big grid.
NREI: How long do you anticipate the auction on Feb. 8 will last and how would that compare with a sequential auction?
Stevenson: I’m guessing it might take two or two and a half hours. With a sequential auction, it typically takes about one and a half to two minutes per property, so if you use two minutes at 80 units, that would be 160 minutes, so a sequential auction could take between two and a half and three hours.
NREI: Were there other factors in holding the simultaneous auction?
Stevenson: It’s being necessitated by the fact that the building is about a year late in completion. At one time we had about 120 of the building’s 206 units sold, so between being almost a year late, and we all know what happened in 2008 in the economy in general, we’re down to 30 escrows. With those escrows added to our 79 units that will be sold at the auction, we’ll be well over 50% sold. Fannie Mae and Freddie Mac now require 50% presales in order to start closings. Because it took so long to complete the building, we lost almost 100 buyers. This allows us to immediately get to over 50% presales and to start closing the units. So it saves the seller a lot of time, and the buyers are going to get great deals.
NREI: Was it a conversion?
Stevenson: No, it’s a rebuild. It’s got all new plumbing, heating and cooling, cabinetry for the kitchens and bathrooms, Italian custom cabinets. It has very high end appliances and hardware. There’s lots of custom features.