By Eli Randel is the COO of Crexi.
Alongside the rise of the internet, online transactions have escalated from a rarity to ubiquitous. The pandemic’s acceleration of digital tool adoption, improving technologies, and overall changing sentiment around the topic have well-positioned online auctions as a viable and valuable disposition and acquisition path for industry professionals.
Consumers were once suspicious of digital transactions and talked about auctions in a hush-hush tone, however these attitudes have radically changed. Today, everything from note sales to income-generating, multi-hundreds-of-millions dollar properties can and are auctioned online.
Auctions offer speed, accessibility, and most importantly deal certainty. This is crucial in uncertain markets in which liquidity and speed matter more than ever. As the market faces inflation and continued Fed rate hikes, online auctions are one of the industry’s most valuable tools in this regard.
When it comes to commercial real estate, online auctions offer sellers the ability to expose and transact properties quickly, and buyers—seasoned and new alike—access to remarkable deals, transparent due diligence data, and a level bidding playing field. As the market remains in flux, auctions don’t only help CRE professionals stay ahead of distress and ready to act fast on sudden-appearing opportunities, but crack open the future of how data and tech will transform our industry.
The post-pandemic CRE landscape is tech-enabled, speedy, and efficient. Millions of commercial real estate players are adopting technology in all facets of deal-finding and closing. While the industry has lagged behind others, such as e-commerce or food delivery, CRE tech tools are broadening access to new markets, networks, and tactics to close and acquire properties.
Advancements in proptech have also made online auctions increasingly safe and simple for buyers and sellers. For sellers, buyers must prove their status as capable investors with proof of funds and provide a refundable participation deposit before participating in the auction, giving sellers peace of mind. On the other side of the table, buyers enjoy secured transactions and a fast certainty of close: sales that once took months to years to transact can now go from list to close in 85 days.
The beauty of the auction process is speed. If I’m a seller in today’s market and I need to quickly transact on a 1031 or to access liquidity, I can rest assured that within the auction timeline, there’s a much smaller chance of financing costs, interest rates, and news cycle changes impacting my disposition. An auction benefits a quick transaction before things get derailed. I’ve already shaken hands with a group of potential buyers to accomplish the deal fast, versus a protracted six-month-long transaction where variables are far more unwieldy – a huge benefit in a shifting marketplace.
As more people are seeing the value in the ability to quickly transact, we are seeing a 94 percent increase in the amount of buyer leads per auction listing year-over-year. More buyers with access to capital are chomping at the bit to purchase, and with auctions, a seller’s ability to expose listings to a buyer pool with cash in hand and ready to move is unmatched.
Here are five key considerations for investors who are looking to explore online commercial real estate auctions.
The Auction Environment Boosts Engagement, as Real-Time Bidding Encourages Competition
Everyone’s heard the story of how an eBay auction drove up the sale price of some rare antique or limited-edition collectible (Beanie Babies, anyone?). This real-time participation makes the transaction exciting: bidders can observe the value of an item rise and respond immediately, making for a satisfying close for the seller once the clock hits zero.
Thanks to the ease of use and the engaging elements of an online bidding war, CRE auctions have attracted thousands of participants and even new buyers to the sector. Herein lies auctions’ true value: as a powerful marketing engine designed to expose properties to the broadest pool of viable investors. The attractiveness of a “bidding event,” broadcasted live, digital marketing reach, and transparent access to the data (what makes a property a valuable ROI) keeps the bidding environment competitive.
We’ve seen this extensively in the art market. About 35 percent of all Christie’s buyers in 2020 were new to purchasing at the house, with much of the growth coming from online sales, according to The New York Times. In a recent interview with The Art Newspaper, Edward Dolman, the executive chairman of Phillips, said: “This is the way the art market is going to be now. Livestreamed international sales and less travel.”
Online Transactions Are Safer, Thanks to Cybersecurity Advancements
While historically, CRE professionals were hesitant to move large amounts of cash via a digital transaction, advancements in proptech and cybersecurity have alleviated most concerns.
A Mastercard survey of 18 markets in 2021 found that most respondents “were willing to consider emerging payment methods such as ‘digital or mobile wallets [and] QR codes.” 90 percent of those surveyed had “tried at least one emerging payment type in the last year,” with about 66 percent trying these methods for the first time in 2020. This broadening acceptance of digital transactions is broadening adoption in the CRE world.
Advancements in digital payments technology and cybersecurity, along with demographic shifts, have made online transactions the norm. The pandemic accelerated this trend, moving our entire lives online. Our culture adjusted to accept remote work and e-commerce as the new normal. Consumer trust in online transactions—which has grown slowly over the decade—skyrocketed during our time indoors and is here to stay, making auctions a powerful tool for buyers and sellers in a shifting market.
Innovation for Buyers
In times of disruption, there are always opportunities for those who are willing to go on the offensive. Investors with capital can acquire value-add or creative reuse properties at desirable prices, potentially in hard-to-enter markets. It’s essential to be flexible and ready to bite if a good deal becomes available, as these kinds of assets could provide massive ROI if the timing and thinking are right.
This speed is essential in a market where Fed announcements and interest rate hikes aren’t leaving anytime soon: as the saying goes, the best time to buy was 20 years ago, and the second-best time is today. Through online CRE auctions, same-day acquisitions become a reality.
Online real estate auctions also allow buyers to do all due diligence upfront and equip them with vast amounts of data that would otherwise be time-consuming and cumbersome to collect. Transparent data levels the playing field, equipping every potential buyer with the same information to make investment decisions.
With the transparency of auctions, nepotism and the sometimes relationship-based backdoor handshakes of traditional CRE melt away, leaving behind a space where anyone with cash is able to buy. I can’t stress enough how revolutionary it is: the ability to see where money’s going and participate in a truly open buyer’s market is the next incarnation of our industry.
Innovation for Sellers
Online auctions also provide immediate benefits for those looking to sell their properties. Whether it’s exposure to the most demand, the competitiveness of the bidding playing field, the certainty of close timelines, or enhanced incentives to finalize deals, sellers of all asset types and classes are turning to auctions.
In the last year, we have seen more than $556M in property value successfully close, earning an average of 148 percent above reserve. We’ve observed properties of every size and swath hit the auction marketplace, from distressed assets to assets worth more than $200 million – and these deals close.
Auctions offer clear advantages for sellers with assets that defy convention, especially those without comps data, and allow a competitive market to determine (and often boost) a property’s value. And thanks to their tech-powered simplicity, people are willing to pay for speed and certainty of close, a factor that’s invaluable for sellers who need to quickly transact on a 1031-exchange or other situations where swiftness matters.
Finally, an auction means sellers don’t need to negotiate. The bidding event allows buyers to vie for the property once the reserve is met, and owners know the deal will close, mainly thanks to the earnest-money deposit required at the start of every auction event.
Auctions Are Shedding Their Former Stigma
Historically, real estate auctions were an unspoken affair, where sellers needed to be sensitive to the distressed or repossessed assets heading to the auction block. Today, online auctions enjoy a cachet, where assets of all sizes and classes are successfully marketed and closed in an auction format.
In 2016, Americans’ perception of real estate auctions changed as many became more educated about the auction process and its advantages. Buyers realized that assets were often auctioned for reasons other than bankruptcy, foreclosure, or different adverse situations. According to Forbes, real estate online auctions, in particular, make sense because “they offer a transparent means to purchase real estate compared to [traditionally] opaque processes.”
Thanks to the online forum, prospective bidders no longer need to travel to the courthouse to find investment options – they can discover assets nationwide from the comfort of their homes. Sellers, too, are choosing auctions for their short timeline and the positive buzz they can create around the assets.
While it’s true that auctions are still the optimal tool for distressed or non-performing properties, it’s no longer exclusively the case. September 2021 marked the auctioning of the largest-ever single-asset online transaction (the Class A Beltway Business Park in Las Vegas, NV) for over $205 million. Properties spanning the gamut of performance find themselves on online auction platforms because sellers know they’ll reach a vast pool of buyers, and buyers know they’ll see deals they normally wouldn’t have access to.
Online auctions offer bidders greater control and transparency while providing sellers with more effective marketing tactics and a broader reach. In an economy where the most flexible and fast have the most to gain, online auctions are a compelling indicator not only in their success, but in how transparency, data, and technology will forever change the way CRE changes hands.