Auctions Gaining Traction in Commercial Real Estate

Once primarily thought of as an option for residential real estate, auctions for commercial real estate have gained more attention as property owners are being forced into foreclosure or looking for ways to raise cash and pay off bank loans.

Auction.com has been in business since 1990, but the company entered the commercial real estate business three years ago.

"For us, the game plan was to make this an acceptable transaction in real estate and get people comfortable using it," says Eric Paulsen, the company's co-CEO, adding that commercial real estate auctions are already popular in countries such as Australia and New Zealand.

Within the past three years more commercial product has come to the auction market, according to Paulsen. In 2011, the commercial division of the company auctioned 1,169 notes at more than $4.6 billion in sales. The commercial division also auctioned 1,087 real estate properties valued at $1.2 billion. The residential division auctioned off 35,000 homes, totaling $1.8 billion.

A typical commercial auction on Auction.com attracts more than 50,000 unique visitors and more than 600 registered bidders.

The company is also beginning to host larger commercial real estate auctions in different states. It recently held a $2 billion commercial real estate auction in Florida. Last year Auction.com held an auction that included $1 billion worth of Nevada assets ranging from retail centers to gated apartment complexes.

Auction.com holds some auctions based on geography, as well as sector-specific specialty auctions. The company is holding its next specialty auction, which will focus on multifamily properties, this summer.

"The growing popularity speaks to the quality of our assets. We have sold a lot of class-A and class-B multifamily properties," Paulsen says. "I really think you'll find more and more product being brought to the auction platform."

Tobin Cobb, co-CEO of LNR Property LLC, says the Miami-based commercial real estate firm has used Auction.com to drum up buyers for some of its properties.

"Auction.com is steep in the auction process. That's the really cool thing about the auction process is it gets people involved who wouldn't normally get involved in commercial real estate," says Cobb.

Paulsen says the advancement of technology has made the auction process more competitive, opening it up to a wide range of investors. Unlike the "ballroom auctions" familiar to many people, Paulsen says technology and portable devices have allowed investors to bid on commercial properties from anywhere in the world.

"One guy was really interested in a property and participated in a multifamily auction from an Internet café in Zimbabwe," he says. "Back in the 1990s, we still had faxes, but with the speed of the Internet, it's not your mother and father's auction for sure. We have the ability to have people go online, bid and close if they want to."

He advises sellers looking to auction their properties to enlist the help of brokers who are comfortable with the auction process. For buyers, he encourages them to take the time to do their homework.

"Stay disciplined in your bidding and know where you want to be on pricing," he said.