What Messrs. Cobb and Kennedy saw, apart from an opportunity for LNR, a special servicer, to sell loans and distressed real estate on the platform and skip paying outside fees, was a fairly straightforward online auction process.
It starts roughly 60 days before any given auction takes place, with the seller executing a master marketing agreement, providing a list of assets to be put on the block, as well as providing necessary due diligence and ordering titles. In the days leading up to the 48-hour auction period, potential buyers gain access to that due diligence, which has been loaded, and submit bid deposits and other information to confirm financial standing.
The due diligence is a sticking point, though, for some. “The general feeling is that most active buyers in the marketplace aren’t going to the Internet to try to find deals, and the information that’s being represented in the process that unfolds in an online auction doesn’t allow the appropriate due diligence,” one top New York-based commercial broker, who spoke on the condition of anonymity, said. He added that the process of coming to a final price between buyer and seller is a very complex negotiation and that an online auction might cut out a portion of buyers who are perhaps older and more traditional and therefore unfamiliar with an online format.
Online auctions also struggle against the perception that the services they offer are strictly for distress. Raymond Villani, the managing director of Bid on the City, an online real estate auction site that launched in New York City in 2009, agreed that this was indeed the heart of the problem. “We wanted to change that perception,” he said. To fight it, the company went luxury only and scaled back.
The New York-based broker, for his part, pointed out that the Internet has been around for 20 years now. “This auction platform—or variations of it—has existed for a long time. It’s not something new to the market,” he said. “It hasn’t caught on yet, so why would it change now?”
But Auction.com executives said that it is catching on. And they cite some recent assignments as evidence of inroads made toward selling more nondistressed commercial real estate. Asked if he thought the company would really be able to transition to selling more nondistress and auction, say, a trophy property in a gateway city like New York, Mr. Koch said it already has.
“It’s happening,” he said. “And I’ll give you a few examples.” He named a building in Glendale, Calif., sold last summer for $73.6 million, with private equity firm Blackstone making the winning bid.
Another example involved Preston Trail Village, a Kroger-anchored shopping center at 17194 Preston Road in Dallas, Texas, that Mr. Koch said sold for $17.1 million—well above Retail Property of America Inc.’s reserve price of $15 million.
“Once we decided to do something with the asset, we talked to several brokers, had some conversations with individuals in the market about a direct sale and then ultimately had some ongoing conversations with Monte,” Shane Garrison, EVP, COO & CIO at RPAI, told Mortgage Observer. “We decided that this one made a lot of sense from an Auction.com standpoint because of the greater visibility the platform provides.”
This was RPAI’s first auction, and Mr. Garrison said that he was comfortable with Auction.com’s ability to move the property and to attract a deep pool of qualified buyers. “It certainly exceeded expectations,” he said. “It was a very fluid exercise behind the scenes.”
For its part, Blackstone circled back to Auction.com after buying the Glendale, Calif., building to use it to sell several of its La Quinta hotels this past summer. “These are big institutional names,” Mr. Koch said. “We’re selling assets for General Electric, we’re selling assets for Kimco—I can just keep pulling out the names.”
CEO Jeff Frieden agreed. “I think that most of the major financial institutions have either bid or are bidding on our platform, because we have a lot of supply,” he said.
Part of growing Auction.com has involved an infusion of human capital and aligning that human capital with some of its tech counterparts. Jake Seid, a co-president at the company who has oversight over its daily operations, has helped to facilitate this since he joined two years ago. Formerly a managing director at venture capital firm Lightspeed Venture Partners, Mr. Seid has recruited Chief Legal Officer Michael Callahan, a longtime general counsel at Yahoo, Chief Technology Officer Ravi Keswani and Chief Financial Officer Bruce Felt, who as chief financial officer of SuccessFactors helped to shepherd that company through its IPO in 2007.
“I think one of the things that you see in the venture world is patterns in what create large companies, and one of the things that creates the largest companies is a market making its first transition from off-line to online,” Mr. Seid said. “And that’s what’s happening in real estate right now.”
Mr. Felt’s hire, in particular, could confirm what several sources told Mortgage Observer and what several executives all but acknowledged—that the company is preparing for an IPO. Mr. Friedman said that it was under consideration and that “if the stars all aligned properly it’s a possibility.” Company CEO Jeff Frieden said that getting rid of a former co-CEO structure that had executives sharing that coveted title had been part of the prep work necessary prior to an IPO.
“It just seemed better to the market that there’s one CEO,” Mr. Frieden said. “And as we think about going public, that would be very unusual to have co-CEOs.”
From his perspective, Mr. Frieden said that, as far as future growth is concerned, there are three key objectives. “One will be our European and worldwide expansion. Auction.com will be a worldwide platform,” he said. “The second area of growth for us would be having a bigger share of the post-crisis residential real estate market.” The third area he cited was “getting more natural holders of real estate,” such as REITs and insurance companies, “and really assisting them with selling their real estate in a platform that has wide distribution.”
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