Making a
bid on commercial auction growth
|
Lexington, KY -
Call
it a sign of the times. Rising demand for services to
accommodate struggling property owners compelled by a
tough economy to sell in a sluggish sales environment
has prompted the launch of a new firm, Schrader and
Robertson Commercial Auctioneers, LLC. The company has
positioned itself in anticipation of a growth market.
"We are optimistic about the long-term real estate
market in Lexington," said Lexington commercial
properties specialist Jamie Schrader. "Fortunately we
are not as subject to some of the major real estate
problems that are occurring in some of the coastal
communities — certainly in Florida — or some of the
high-growth communities such as Phoenix. But with
changing economic conditions, the overvalued real estate
market and some of the unemployment issues, we do
anticipate that there will be excess inventory in both
the residential and commercial markets that will need to
be sold via auction."
Walt Robertson, the Fasig
Tipton chairman and president/auctioneer at
Swinebroad-Denton, Inc., along with Swinebroad-Denton
colleague and Keeneland Senior Auctioneer Ryan Mahan,
have formed a partnership with Lexington commercial real
estate specialist Jamie Schrader.
Robertson,
Schrader and Mahan first worked together when the
Fayette County Board of Education placed the J.R. Ewan
Elementary School up for auction in the spring of 2009,
"and it went very well," noted Robertson. "Then we had
another sale last fall, a commercial piece of property
on the interstate in Winchester, which also went very
well."
Road-tested, and with the economic
handwriting on the wall, the trio decided the time was
right to capture a materializing market by pooling
talents and resources.
They sat down with
Business Lexington's Tom Martin for a discussion about
the new firm and their views of the central Kentucky
market.
Here are highlights of the conversation:
TM: Does the auction take the
guesswork out of establishing market value?
WR (Walt Robertson): Swinebroad-Denton has done three
sales of notable properties in the last six to eight
months, and they've all produced in the neighborhood of
15 registered bidders. So that's 15 people at each one
of these sales that are all willing, ready and able to
buy the property. The only question is what the price
is. But when you have competition for anything among 15
people, the end number is going to be a fair price. It's
as simple as that; you can't argue with it.
JS
(Jamie Schrader): We have a very good handle on who
likes to buy property at auctions; who has the financial
capacity to purchase the property at auction; who has a
use for the property, once they buy it. So it's a
two-step process: we're going to identify people who
want or need to sell properties by auction, and then
we've got this contact base that are farm owners,
property owners, commercial real estate investors,
end-users. We want them all together at the same time,
actively bidding on our clients' property.
RM
(Ryan Mahan): A big part of what we do is hold their
hands through the entire process — both ends of it,
buyer and seller. Unlike an open house for a home, where
mom and dad go and want to see the kitchen but they have
no interest in buying it, with commercial real estate,
they are there for a reason. It's business
TM: Buyer's market or seller's market?
JS: (For) those that have cash, access to credit, an
idea and intestinal fortitude, there are certainly great
buying opportunities, much like the stock market when it
reached its low in March. If you had cash and were an
aggressive buyer at that time, you would have earned
probably a 35- to 40-percent return in a nine-month to a
year period. We've seen some of the same things
occurring with the commercial real estate market.
TM: What is your strategy?
JS: Anybody
that has surplus property, that has the cost of caring
for the property including taxes, insurance and
utilities, (and) that wants to sell the property in a
reasonable or shorter time period, we view them as our
potential clients. Some people really want to sell their
property quickly, and in today's market, with credit
being tight, with properties on the market for a longer
period of time, the auction may be their only way to
quickly sell a property.
TM: At one point in
2009, the credit market froze. Have you seen improvement
in recent months?
JS: People that have good
credit and have a viable project will probably have good
access to credit in our market, but it's still a
challenge. The underwriting is more stringent than in
years past. You'd better have a tenant before you take
on a big project.
TM: Is it more difficult in
these conditions to secure that tenant?
JS:
The areas that I'm seeing the most activity in are the
medical field. Clearly all of the hospitals are
expanding; they are leasing space from property
owners. That area has been very strong locally. I'm
seeing a lot of interest on the leasing side from
secondary schools, institutions not necessarily related
to the University of Kentucky but trade schools that
teach skills to people that are high school graduates.
And then we have continued to establish a base in
Lexington with a lot of data processing-type companies,
such as ACS, which is a huge tenant in our marketplace.
So those are the areas that we're seeing a fair amount
of activity from still on the leasing side.
TM: Let's talk about the dynamics of the auction. What
happens when you're up there and you have a group of
people before you and you think you know what they have
in mind, and they think they know where you're going to
go? Tell us about this dance.
WR: Often
enough we're surprised, sometimes pleasantly. For me, to
predict what a man's going to get for a piece of
property, it's merely a prediction. But all the
questions get answered in about 15 minutes.
RM: There's some drama involved with it. I think there
is more emotion in an auction certainly, than writing a
contract and delivering it. And that's what we live by —
that emotion, the theatrics of it. It's instant
commerce, belly-to-belly commerce.
WR: The other
thing, Tom, is we employ absolute auctions as the normal
selling process. When we advertise a property at
absolute auction, the buyer that comes that day knows
the property will be sold when the hammer goes down. It
eliminates the whole process that is normally involved
in the negotiation when purchasing a commercial property
— the back and forth and the contingencies. All that is
eliminated.
TM: What is required in order to
bid?
JS: We can negotiate any type of
arrangement, but it would not be unusual for the buyer
to be required to put up 10 percent of the purchase
price, nonrefundable, in good funds the day of the
auction. And they will sign a contract that is not
negotiated — they have seen the contract upfront at the
auction — with a closing typically to occur in 30 days.
It could be changed. We can require a higher down
payment. There may be a longer period to close, but
everything is spelled out in concise terms on the front
end. ...
It depends a little bit on the type of
property and the dollar amount that is involved. For
instance, when Walt and Ryan sold Calumet Farm and it
was a $17 million auction, that eliminated a whole lot
of buyers. And before they come and bid, they better
have some money up [front], and you need to have some
confidence in their ability to close.
TM: You
really marketed that auction, didn't you?
RM:
We did. This was a pretty interesting play. We marketed
it all over the world and through equine and financial
publications the world over — The Wall Street Journal,
London Financial Times, Nikkei in Japan, plus all of the
world's horse magazines. But in addition to that, we
made contact with whoever we thought would have the
potential — and that's a pretty short list, the people
that would have the potential to give $15 to $20 million
for a horse farm. By the time we boiled it down, we came
up with 40 names that could possibly have the
wherewithal and the interest to buy Calumet Farm. Ryan
and I sent out 40 letters to those people and included
bidder packets and everything they needed. We contacted
40 people and from that short list of 40 people, we
ended up with four registered bidders, and all four of
them bid.
TM: Of course, Calumet is an iconic
farm, but is that how you operate on a smaller scale?
RM: Absolutely. We've got to have a comfort level
with every bidder that we deal with.
JS: Another
thing that is very interesting: after we've advertised
the property widely, after we've contacted all the
potential bidders, after we've conducted a professional
auction and done everything the right way, that property
sells for what it's worth. Whether the seller is
particularly pleased with the number or not, that's the
value. And that's the thing that's interesting to me is
that when it's a competitive market, everybody is
bidding, and it's sold for what it's worth.
TM: One more thing. How do you auctioneers talk so fast?
RM: It just comes out that way.
WR: A lot of
practice.
