Eastern Consolidated's Miller

Will the Markets See More Assets Auctioned Off?

Whether it’s due to acute distress in the form of bankruptcy or a less-urgent desire to part with assets as quickly as possible, real estate auctions have been in the headlines lately on GlobeSt.com. Last month, GlobeSt.com reported that the land for an 800-acre MXD in Gulf Shores, AL is being auctioned as its developer works through the Chapter 11 process, and another article reported that in the current economy, some property owners see auctions as a faster way to move properties than going through the traditional sales process. By an unassailable margin—96% of respondents—visitors to this website from around the US agree that we’ll see more auctions where these came from. On a more local level, we asked Alan Miller, senior director at Eastern Consolidated, about the likelihood of sellers in the New York metro area going this route.

“During the downturn in the early 1990s, there was a company formed to do accelerated auctions. They would do bulk sales in auction style. When banks would take back the REO, the real estate owned, they would hire this company. While it was a little distressed, they actually got good numbers because they created demand. We may see those days again, although it’s a little early to tell. But six months to 12 months from now, some sort of auctions will be taking place.

“In New York, I think we’re a year or two behind what started to happen more than a year ago in San Diego or Las Vegas. New York’s not immune to this, and problems are coming. There’s a lot of stress out there, although not as much distress, because banks haven’t started selling loans for 25 cents on the dollar. We just did a deal in Florida on a failed condo project—a nice building, and the price of the loan was a lot less than the replacement cost. It’s too soon for that here. I just don’t think things have filtered through the system yet. There really hasn’t been much job less yet, although there will be. But I’m not sure New York is going to be like a Vegas or Florida. There are something like 7,000 residential units in Manhattan that may be in trouble. That’s really not a lot when you consider that millions of people live here. In Dade County, it’s more like 50,000 or 60,000 residential units.

“Banks are not in the business of owning real estate, especially condominiums. So before it gets to that point, they’re going to do everything possible. They’ll sell the debt at a discount and take a hit. Some of them are keeping the debt on their books, but right now they’re not doing any write-downs for certain reasons, until the whole federal package gets figured out. If they wrote down the debt now, it would just be messier. Or they’ll hire the experts to do some sort of auction, either piecemeal or in bulk.

“You have to be ready. There’s a lot of capital out there, vulture funds waiting to pounce on distressed deals. The opportunities aren’t quite there yet, because things haven’t settled down. The world changes every day. The stock market goes up and down, and people don’t know where things are headed yet.”