NEW YORK CITY—It wasn't so long ago that a property that sold via auction was inevitably troubled, placed on the block as a result of bankruptcy or foreclosure. More recently, that view has been supplanted by one that sees auctions as an alternative to the traditional sales process, and in some cases, even the preferred method, says Jonathan Cuticelli, director of project management and principal auctioneer at Sheldon Good & Co. Cuticelli, who has sold more than $500 million in commercial properties at auction, recently sat down with GlobeSt.com to discuss the advantages that auctions can offer to both sellers and buyers.
GlobeSt.com: How did the current perception of auctions for selling commercial properties evolve?
Jonathan Cuticelli: Auctions have had a pretty negative connotation, for the mere fact that banks were looking to offload large portions of real estate from their books in order to make a little money or save a little bit of their money from loans that they had made. And the best way to do it was to bulk-sale through an auction vehicle. As banks reduced their inventory and weren't able to provide so much property to the auction industry, I believe that people looked to the auction in terms of, “there are really great properties out there that people are interested in buying in a competitive nature.” So it evolved into a more accepted sales approach for a private seller.
You advertise for four to six weeks, you set a date in which a sale is going to occur, you have open houses, you put together the due diligence materials ahead of time, and the negotiation isn't done at the closing table. It's done prior to the auction, and everyone is put on the same playing field. It's a very clean, transparent process, not only for the seller to reduce the time in which the sale could occur, but also the buyer.
GlobeSt.com: What reasons would a seller have to sell through an auction rather than market the property or properties through traditional channels?
Cuticelli: Often, a seller will look at the traditional sales approach first. And what they'll find is that it's a very local approach that the agent takes. An auction puts the marketing on a more regional basis, therefore expanding the universe of a buyers that would or should be interested in buying that house. What I've seen is that sellers are becoming more frustrated with the conventional sales approach. Conventional brokers are great in the sense that they know their market, they're the experts. But when it comes to marketing in a broader sense, sometimes they're a bit more confined. They think more locally than globally.
I've done a number of commercial sales, especially in multifamily. A lot of times conventional brokers look to their client lists in an effort to get the sale done. I don't know that they reach out as far as a full-blown marketing strategy, which is what our auctions achieve, not only in print publications but also online.
GlobeSt.com: Would an auction be especially advantageous in a multi-state portfolio?
Cuticelli: I've done a number of multi-state sales. One that stands out in my mind was an apartment portfolio in New Jersey and Pennsylvania: two larger buildings in Trenton, NJ and three buildings in Bethlehem, PA. It was advantageous in terms of the seller being able to sell all of these assets in a single day, with one marketing campaign. It brings everyone together at one specific time to conduct that sale, whereas in a conventional sales approach you would negotiate five different sale agreements at five different times. This was very clean in the sense that five different properties sold to five different parties in one day. The contrast was set up prior to the sale, they knew what they buying, they knew what they were signing and they were comfortable with the price they were willing to pay.
GlobeSt.com: Do you anticipate that we're going to see wider use of the auction format over the next year or two?
Cuticelli: It's difficult to say, although I certainly hope so. Maybe not in the commercial sense, but I believe there is going to be a peak of interest by New York City developers and their condo inventory, to have a process that is controlled and highly visible to the marketplace and has the ability to sell a large number of units in one day.
GlobeSt.com: How did the current perception of auctions for selling commercial properties evolve?
Jonathan Cuticelli: Auctions have had a pretty negative connotation, for the mere fact that banks were looking to offload large portions of real estate from their books in order to make a little money or save a little bit of their money from loans that they had made. And the best way to do it was to bulk-sale through an auction vehicle. As banks reduced their inventory and weren't able to provide so much property to the auction industry, I believe that people looked to the auction in terms of, “there are really great properties out there that people are interested in buying in a competitive nature.” So it evolved into a more accepted sales approach for a private seller.
You advertise for four to six weeks, you set a date in which a sale is going to occur, you have open houses, you put together the due diligence materials ahead of time, and the negotiation isn't done at the closing table. It's done prior to the auction, and everyone is put on the same playing field. It's a very clean, transparent process, not only for the seller to reduce the time in which the sale could occur, but also the buyer.
GlobeSt.com: What reasons would a seller have to sell through an auction rather than market the property or properties through traditional channels?
Cuticelli: Often, a seller will look at the traditional sales approach first. And what they'll find is that it's a very local approach that the agent takes. An auction puts the marketing on a more regional basis, therefore expanding the universe of a buyers that would or should be interested in buying that house. What I've seen is that sellers are becoming more frustrated with the conventional sales approach. Conventional brokers are great in the sense that they know their market, they're the experts. But when it comes to marketing in a broader sense, sometimes they're a bit more confined. They think more locally than globally.
I've done a number of commercial sales, especially in multifamily. A lot of times conventional brokers look to their client lists in an effort to get the sale done. I don't know that they reach out as far as a full-blown marketing strategy, which is what our auctions achieve, not only in print publications but also online.
GlobeSt.com: Would an auction be especially advantageous in a multi-state portfolio?
Cuticelli: I've done a number of multi-state sales. One that stands out in my mind was an apartment portfolio in New Jersey and Pennsylvania: two larger buildings in Trenton, NJ and three buildings in Bethlehem, PA. It was advantageous in terms of the seller being able to sell all of these assets in a single day, with one marketing campaign. It brings everyone together at one specific time to conduct that sale, whereas in a conventional sales approach you would negotiate five different sale agreements at five different times. This was very clean in the sense that five different properties sold to five different parties in one day. The contrast was set up prior to the sale, they knew what they buying, they knew what they were signing and they were comfortable with the price they were willing to pay.
GlobeSt.com: Do you anticipate that we're going to see wider use of the auction format over the next year or two?
Cuticelli: It's difficult to say, although I certainly hope so. Maybe not in the commercial sense, but I believe there is going to be a peak of interest by
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