Commercial Real Estate Frontline

1. Time is everything right now. George Soros said last week of commercial property values “… we know, they will drop at least 30 percent.*” Some analysts predict a 50 percent or greater drop. How long this pain will last nobody knows but we do know we are still at the beginning. In a declining market properties lose value as time passes.
2. Pricing in this market is uncertain. Any appraiser will tell you that there is a dearth of comparable sales in the market for nearly every asset type. The “bid-ask spread” that everyone is talking about is real. Price a property too high and that property will sit.
3. Competition is fierce for the attention of the few qualified buyers that are in the market. Sellers need a strategy for pulling attention away from competing properties.
4. Activity is down… way down. Statistics point to an 87% drop in commercial real estate sales transactions in Q1 of 2009 versus 2008.
5. Certainty in this market ephemeral. Transactions are dying on the vine in unprecedented numbers as would-be buyers get cold feet, lose funding, or run into a whole host of other complications.

A “call for offers” just doesn’t cut it in this market. Traditional listing campaigns with seller driven asking prices are falling flat. At the same time many sellers believe the auction methodology is simply too risky or will be perceived in the market as “desperate”. Enter the Sealed Bid Convertible Sale.

The Sealed Bid phase of the sale offers a date-certain event with seller dictated terms like an auction but preserves much of the discretion and privacy that sellers enjoy in a negotiated sale. The sealed bid methodology acts as insurance against bidders’ potentially disparate views of value which would become obvious at a public auction.

The Convertible phase of the sale is employed when bids are similar. In this phase the competition is hot and any remaining value is discovered by inviting a select group of qualified bidders to successive rounds of public and open bidding.

As lenders pull back from offering extensions and with a mountain of unattainable commercial property refinances looming we can expect to see more accelerated sales in a variety of flavors. The Sealed Bid Convertible is one option that Attorneys, Trustees, Lenders, and Private Sellers alike can employ to meet their disposition goals.

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