Why Now for Auction Finance's Launch?

ThoughtLeadership|&utm_term=|eNewsletter-Editorial-NAT(eNewsletter)|"> Auction.com LLC has launched Auction Finance, a division created to facilitate financing for commercial and residential real estate investors. The new line of business will be led by EVP Gordon Smith—formerly a managing director with Fortress Investment Group, a global investment-management firm—who will be based in Auction.com's Silicon Valley office. GlobeSt.com spoke with Rick Sharga, the firm's EVP, about the timing of this launch and trends he's seeing in real estate finance.

GlobeSt.com: What was now the right time to launch the Auction Finance division?

Sharga: It's part of the evolution of our business model. When we first started out, we were doing big, ballroom-style auctions, and people would come in with briefcases full or cash or cashier's checks and buy properties on the spot. We wanted to provide as many options on our site as possible to help as wide a range of people as possible, so this was one way to do it.

Also, there are shifting market conditions at play. This is not a major driver, but something to consider as well. Big institutional investors have slowed down their buying activity on homes for rental, and we're seeing more of the medium-sized investors who have a bigger need for financing than some of the larger investors do. So, Auction Finance is meeting a market need.

GlobeSt.com: Is finance becoming the dominant piece in real estate transactions today?

Sharga: Well, that's the $3-trillion question, isn't it? I have to start with a bias of coming from the residential side of the market. A lack of ready financing is one of the big headwinds facing the residential real estate market. One can make a similar argument, although not as dire, on the commercial side. There's not much risk-taking going on in the lending community. Credit is incredibly tight, although it's coming back a little faster on the commercial side than on the residential side. At the cusp of residential and commercial, Auction.com serves a market need, but it's hard to say that financing is the primary driver in the real estate industry right now.

GlobeSt.com: What trends are you noticing in the finance realm?

Sharga: The biggest of the institutional investors—firms like Cerberus and others—are offering financing, so they've shifted gears. It's likely some of these firms will be partners of ours in our new Auction Finance division. They offering shorter-duration loans with relatively low loan-to-value ratio and probably slightly higher than the lowest rates available to consumer buyers. But we're seeing loan products coming into the market that are specifically geared toward these small and mid-sized investors. I suspect this will lead to similar products for those buying at the lower end of multifamily, hospitality units and small retail operations. I think it will extend to those markets as well.