Information & Tips On Selling Commercial REO Using CRE Auctions & Online Due Diligence Tools (a series)
For most commercial real estate lenders and loan servicers, it is important to quickly stabilize and then promptly sell property after acquiring title to collateral. The typical REO (definition) business plan includes the need to move the REO off the balance sheet by selling REO in an orderly manner—after coordinating loss recognition with an increase in capital reserves, with any loss sharing agreement, etc.
The sale of REO is the stuff that all of the “opportunity” or distressed investment funds target, and have been waiting for during the last 24 months.
Those funds and investors, of course, recall the quick profits realized in the late ‘80s\early ‘90s by those who purchased properties from the government (acting through the Resolution Trust Corporation or RTC), or from failing banks and savings and loan associations.
How did the RTC quickly sell the thousands of commercial real estate properties that it owned, or the mortgages on those properties? The RTC often held auctions.
The RTC experience proved that auctions are a good way to quickly move a lot of REO off book.
In 2009, we worked on several CRE auctions. For 2010, we anticipate (finally) being involved in more auctions by commercial lenders—after they take back collateral through foreclosures and deeds in lieu of foreclosure (link to prior postings on deeds in lieu).
Auctions are back.
Auction companies come in all shapes and sizes. (Google search). There even are specialists: DebtX focuses on loan sales using an on-line bidding process (The Debt Exchange).
While DebtX's online model has proven successful, and has been well-received by note buyers, I favor a blended approach: (i) real, “live” auctions in a local ballroom combined with (ii) online bidding. And, of course, like a pure online model, any auction should utilize online due diligence tools.
This series will help you understand commercial real estate auctions; and how technology now plays a key role both in auctions (and during the on-going "life" of the asset).
In this series, I interview Bill Vaughan with CREAuction Group) (e-mail Bill at bill@creauctiongroup.com), an expert in commercial real estate auctions; and Mike Shanley with Realworkspaces) (e-mail Mike at mike.shanley@realworkspaces.com), an expert in online due diligence tools and electronic document storage.
Bill and Mike will educate and show us how CRE auctions in 2010 will be executed. Parts of it will be very different from the RTC auctions of the late ‘80s & early ‘90s. And that’s a good thing.
But before we get into the details of auctions and the role of technology in auctions, let’s take a quick look at two high-level pieces furnished to me by Bill Vaughan and Mike Shanley.
- Bill Vaughan gives us this advertisement for a December 2009 auction held by CREAuction Group. This ad points to the importance of local, “live” auctions in your REO sales strategy. [download advertisement]
- Mike Shanley can not compete with Steve Jobs on creating a gee-wiz video of cool technology doing great things [Link to iPad announcement]. However, this picture clearly shows that using an electronic process for collecting and sharing due diligence materials results in an entirely new ecosystem—both during the auction and continuing throughout the life of the asset (i.e., the electronic file should "follow" the ownership through all stages of ownership, operations and management)
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In the next posting (and series), we’ll jump into the details of auctions and how technology makes it all possible.
If you have a question, comment or war story on the topics of commercial real estate auctions and the uses of technology in it, please post a comment below.
