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Gordon Greene

Gordon Greene, principal of the TCN Auction Group at Cleveland-based Chartwell Group/TCN Worldwide, isn’t surprised that a growing number of commercial brokers are turning to auctions to help move their properties. He just hopes that these brokers understand that the auction business poses its own challenges.

Midwest Real Estate News: Are you seeing more commercial real estate auctions these days?
Gordon Greene: Yes. It always depends upon where we are in the cycle. Is there more supply than demand? Right now there is. How do you balance that? Over the years, brokers have found that a high-profile real estate auction program can often deliver product faster to the market. A high-profile real estate auction can help brokers find out where the market is. Those are two important benefit in times like these.

MWREN: What kind of commercial real estate auctions are you seeing these days?
Greene: Traditional negotiated sales can take many months to generate. We are seeing more activity in 2010 on the commercial auction side because brokers need to sell their properties. We are also seeing corporations with surplus properties turning to the auction format. They don’t want to continue carrying surplus real estate on their books. The next category that we are seeing is workouts. I would literally describe that as a borrower and a lender, where maybe the lender owns 125 percent of the value of the real estate. The mortgage exceeds the value of the asset. But there is an incremental value to the lender keeping the owner in title, in managing the property until it is sold. We are seeing more and more of these workouts. They are basically orchestrated short sales. They have to be worked out between the lender, borrower and the borrower’s attorney. Finally, we are also seeing foreclosed assets come up for auction.

MWREN: Are commercial brokers more aware of the auction as a legitimate option today?
Greene: In the brokerage field in commercial sales, often if you continue to look for business in the same segment of the marketplace as you did three years ago, you may not eat as well. Sometimes parties in our business forget that our services are sometimes a moving target. Sometimes we are making money in the transactional business. Other times we are not. Markets go up. Markets go down. Now we are seeing sellers who have surplus properties and have a time in which they need to sell by, whether it be the end of the year or the end of the fiscal period. We will see more of this in 2011 and 2012. The markets will eventually stabilize, though, and there will be more of the traditional use of negotiated sales compared to auction sales in the future.

MWREN: What can commercial brokers do to increase their odds of successfully selling their properties through auctions?
Greene: Auctions are a very specialized area of real estate brokerage. It is accelerated brokerage. Companies think that the firms involved in auctions are in the auction business. They are not. They are in the brokerage business. Their job is to have a property sold by a certain date.

MWREN: Do markets like this one encourage companies without the proper amount of experience or training to enter the auction arena?
Greene: Each cycle, whether we’re talking about the cycle in 1972 when you had interest rates of 19 percent or today’s cycle, you see the proliferation of inexperienced groups trying to utilize the auction model with mediocre success.

MWREN: What makes a property a good candidate for a commercial real estate auction?
Greene: In a market like this, you almost have to be a psychiatrist for the real estate industry. You have to ask, ‘Mr. Seller, what are you looking to accomplish? What is your goal? Do you have equity? Can you finance the asset? Will the property perform reasonably well in the marketplace, or should you wait another six or 12 months? It’s not always just about the value of a specific asset or a group of assets for a seller. What I’m saying is that there is a real consulting component before you even get into whether a property can be sold by auction or should be sold by auction. You almost have to get into the motivations of the seller and/or the lender to determine the best course of action.

MWREN: What type of property seems to be going up for auction more frequently than others?
Greene: We are seeing a number of hotel sales. You are seeing more hotel auctions than any other category of auctions, because the valuation on hotels can go up and down faster than with other assets. If you have an office, you might have a three-year lease. If you have an apartment, you might have a one-month or a six-month lease. If you have a hotel, you have one-day leases. Occupancy can go up and down relatively quickly. The hotel business has seen a number of foreclosures. There is more stability in other sectors.

Tags | auctions, Chartwell Group/TCN Worldwide, Cleveland, hotels, Office, Ohio

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