Auction Finance Aims to Remove Uncertainty

Editorial|&utm_term=|Website-Editorial-NAT(Website)|">Auction.com's new financing program provides more liquidity for potential buyers, access to financing during the bidding process and a better experience for all involved, EVP Gordon Smith tells GlobeSt.com exclusively. As we reported in February, the firm tapped Smith, who currently heads Auction Finance—the division that facilitates financing for commercial and residential real estate investors—to be general manager of the company's commercial real estate division. GlobeSt.com reported on the division's launch in October 2014. We spoke with Smith about the financing program and what makes it different from other forms of financing in the industry.

GlobeSt.com: What stands out for you the most about Auction.com's financing program?

Gordon Smith: We're still in the testing phase, and we're just starting to market it now. We spent quite a bit of time going through our sales in 2014, and after looking at all our customers' closing statements, we discovered that approximately 50% of our clients were financing; they were just doing it after the auction. There's been a lot of demand for this, and if we can create a frictionless way for our customers to access financing while bidding on our assets, we can create a better buyer/seller experience for everyone involved. It will provide more liquidity for potential buyers and remove any uncertainty they may have in trying to arrange financing post-auction.

GlobeSt.com: How does this program mesh with your new responsibilities as general manager for CRE?

Smith: I originally came to run that business, and they're almost interrelated. Almost everything you need to do on the financial side is interdependent with commercial, so it's defaulted under CRE. It's directly aligned with our core business strategy. We're not trying to create a separate financing business—it's just another service we're providing to enhance the Auction.com platform.

GlobeSt.com: What makes the financing program different from other forms of financing in the industry?

Smith: It's similar to the Sintech online lending business proliferating across all types of assets, just applied to the real estate space. We are really doing this to try to enhance our core proposition, to facilitate on-demand financing for participants in our lending platform. Borrowers who use our preferred lenders will get credit for proof of funds prior to bidding. This scales a huge barrier for our customers and gives them more liquidity.

GlobeSt.com: How are underwriting standards in general changing for commercial real estate at a time when there is so much competition for deals?

Smith: Underwriting standards mimic most real estate cycles, and as you get to the end, underwriters are more optimistic in terms of cap rates, rents and growth. There's nothing reckless going on right now: fundamentals are stable, there's ample available capital, and we're not yet seeing the irrational exuberance we saw during the last real estate cycle.