Auction company hits paydirt on real estate slump.

Auction company hits paydirt on real estate slump

Santa Monica firm conducting big business with RTC 

A depressed real estate market nationwide has added up to skyrocketing profits for auctioneers, and few more so than Santa Monica-based Kennedy-Wilson Inc.

Kennedy-Wilson, one of the largest auctioneers in the nation, recently conducted an enormous real estate auction for one of the prime recipients of real estate development projects gone awry, the federal Resolution Trust Corp.

"It went spectacularly," said Bill Stevenson, president of the 14-year-old company. All but four of 1,450 Texas residential and commercial properties and raw parcels were sold, for a sum total of $12 million over an eight-day period starting June 23 and concluding June 30.

RTC officials expressed pleasure with the sale and lauded Kennedy-Wilson for its performance.

"We can't be more pleased with Kennedy-Wilson; they've been doing these jobs for a long time and it showed," said Steve Moi, marketing director for the RTC's southwest region.

Moi said the company's performance was remarkable given that it only had 42 days to prepare for the auction, about half the normal lead time offered by the RTC for an auction.

"We had them on a real short fuse," said Moi, who added that the RTC, criticized by some for holding its properties too long, plans to increase the percentage of properties disposed of by auctions.

Kennedy-Wilson has a one-year contract with the RTC that will last through May 1992 and includes three auctions.

Fueled by such demand, Kennedy-Wilson expects to nearly triple its sales from $400 million in 1990 to $1.3 billion in 1991, Stevenson said. That compares with $100 million in sales in 1989.

But beyond the windfall brought by the current recession, Stevenson asserts that an increasing number of healthy and new properties will be sold by auctions in the year to come.

"Ultimately, the auction is an honest and open forum where all buyers know what the other buyers want and the auctioneer becomes a referee," said Stevenson, who predicts that in the 1990s, 50 percent or more of new homes may be sold by auction, rather than by developers or brokers.

One analyst, while praising the work of Kennedy-Wilson, disputed that prognosis.

"I don't think it will ever become totally widespread," said Bruce Ballenger, partner in charge of the Los Angeles real estate consulting group of Big Six accounting firm Coopers & Lybrand. "Developers feel that there is traditionally greater sales value by selling projects by other sales methods. Auctioneers have enjoyed tremendous success because of real estate problems, but that may subside as the real estate market recovers."

Stevenson said that 10 percent to 20 percent of deals made through his auctions fall out of escrow, a percentage he said is lower than comparable figure for brokered transactions.

Ballenger said that that may be comparing apples to oranges because brokers often break up deals in hopes of eventually selling properties at a better market price.

Stevenson said that all but highly complicated or unique projects can be sold by auction, although relatively less complex residential properties comprise some 50 percent to 70 percent of dollar volume items sold by the company, Stevenson said.

A key to success at the auctions is the month of groundwork that precedes most auctions, Stevenson said. Preparation includes due diligence, marketing the projects with colorful brochures and establishing minimum bids.

"Many people in the business look at the auction as the entire process," he said. "We focus just as much on what goes on before the auction. What makes it successful is to have buyers at an auction who are in a buyer's frame of mind."

Stevenson said that steps are being taken to allow more flexibility into the auction process, such as lengthening the closing period -- currently 45 to 60 days.

Stevenson formed the firm along with auctioneers Donald Kennedy and John Wilson in 1977, after serving as an asset manager for Union America, a financial conglomerate based in Los Angeles. Managing 25 large real estate projects and participating in the sale of $100 million in properties convinced Stevenson of the need for auctioneers with a better grasp of the real estate market.

"We thought it was a good business opportunity and it was a business we understood," Stevenson said. "It was clear to me that there was a business with easy capital requirements in which we could become a dominant player."

Stevenson bought out his partners two years later and now shares ownership of the company with three other individuals. Stevenson said that Kennedy-Wilson occasionally purchases and sells its own properties, but after giving institutions a warning: "I always say to them, |If you are willing to sell it to me, either you are making a mistake or I am.' "

The commission charged by Kennedy-Wilson for its services is commensurate with the marketing costs developers and investors would otherwise incur with brokers, Stevenson said, declining to specify the rates charged.

Ballenger said that like any other services, quality auctioneering costs.

"I've been very fortunate to have had no bad experiences personally," he said. "But I know several people who tried to save a couple dollars. . . . you always get what you pay for."