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1991 year of the property auction.

1991 year of the property auction

1991 marked the year when auctions came to the forefront of marketing residential real estate. Once associated with foreclosure and hardship, many private developers and bankers came to the conclusion that a properly marketed, well conducted auction is the most efficient and cost effective way to sell real estate. Properties which had languished on the market for months or years, were beginning to get stale from a lack of sales activities, and were causing their owners financial problems from a lack of sales, were quickly revitalized through the marketing power of auctions.

As an industry, we have proven beyond any reasonable doubt that auctions attract the attention of prospective buyers as no other marketing tool can. The same market forces and competitive bidding which drive the markets for Japanese Yen, Deutschmarks, corn, wheat, coffee, sugar, cotton, gold, silver, gasoline, heating oil, impressionist paintings and finally $6 trillion in debt of the U.S. Government and its agencies work equally well when selling real estate. And why not? How can it be that so many other valuable commodities are eagerly bought and sold at auctions as the marketing tool of choice but not condos in Yorkville, co-ops in Kew Gardens, or an office building in Hauppague?

Chief among our accomplishments as an industry has been the education of both buyers and sellers as to how properties are sold at auction. For sellers, we have demonstrated that a well thought out auction can breath new life into properties and bring large sums of money into the sellers bank account. For buyers, we have shown them that if you come prepared, you can buy a great product at a fair price. Alternatively, if you take the advice as set forth in a recent major newspaper and plan on reneging an auction purchase, all you can be certain of is that you'll lose your down payment. We have also brought many potential purchasers further up on the learning curve as to auction terminology and though they may have attended an auction and not made a purchase, we're confident that many of them will attend a subsequent auction with the goal of being a successful purchaser. As there are still people who see attending an auction as an intimidating event, our educational process will continue into the new year and beyond.

One of the most interesting and successful residential auctions occurred in November 1991. This firm represented a major New York City cooperative corporation which had taken back 110 vacant and occupied units from a defaulting sponsor and utilized the recently instituted Cooperative Policy Statement No. 6 to conduct a well advertised, well attended public auction of the apartment units. This was the first such auction conducted under CPS 6, which allows the cooperative owners corporation a great deal of latitude in conducting such sales. Without the benefit of CPS 6 the owners corporation would have had to conduct a UCC foreclosure sale and would have realized very little in the way of sales proceeds. As it tumed out, because there were only a handful of vacancies and several hundred people interested in this attractive property, the auction sale prices of the vacant apartments were almost double the most recent prices offered by buyers on a conventional sales basis. Once again, prior to the auction, the vacant apartments had been on the market for many months and had attracted little interest prior to the commencement of the auction advertising. The competitive bidding format of the auction forced interested purchasers to compete head to head in an exciting, high spirited event which drove prices to a point where you could almost believe that it was 1987 again.

When the history books are written about this real estate market they may well note that 1991 was the bottom of the worst market since the Great Depression. We've called this market the "Not-So-Great Depression" since we as a real estate industry have had to actually live through it. We are rife with problems including continued over-capacity in the office market, an infrastructure in need of major capital improvement, continued flight of the Fortune 500's from New York City, and a general a lack of liquidity and capital. Though 1992 may not be dramatically better than 1991, we may now be seeing the very first signs of stabilization which will lead to a healthy and long term recovery. Curiously absent from the commercial real estate market has been any "Blood in the Streets" type of transaction. Recently published fourth quarter results for New York City money center banks were generally strong and it appears that they have traveled through the majority of this downturn with only a few major sales of real estate. Though there was a great deal of damage to their balance sheets from write downs of real estate assets, it is likely that over the next few years the banks will start to sell assets in ernest, hopefully at values in excess of their greatly reduced book value. No doubt one of the major psychological factors in deciding against selling in the early 1990's was the profits made by Olympia and York from their famous Uris deal in the mid 1970's which by now is indelibly etched into the mind of every major real estate lender and executive.

For 1992 we offer the following predictions: In the residential market it appears that the tidal wave of sponsor defaults which originated in Manhattan in the late 1980's and early 1990's and crashed through the outer boroughs has started to recede causing properties to move into financially stronger hands including the Resolution Trust Company. We anticipate that there will be more residential auctions as the recasting of the ownership of properties continues. This will occur because auctions deliver market prices and, as previously mentioned, the competitive bidding pressure of auction can at times deliver prices in excess of market. This bodes very well for the continued use of auctions through this market cycle and well into the future.

Though auctions have been almost exclusively applied to the sale of residential real estate, we see that the same basic principles which make for a successful sale of residences: careful marketing and advertisement of the property's availability, illusion of a bargain, and thorough make-ready are readily translatable to commercial properties will be sold through auction for the same reasons that residential properties were sold at auction: Auctions mean sales! It is, of course, critical that the auction company have an expertise in both the marketing of real properties and knowledge of the local real estate market. The key to a successful sale of commercial property at auction is that the seller spend the necessary time, effort and money in order to prepare the property for sale. This allows the seller rather than the buyer to capture the bulk of the equity and further allows the seller to maximize his sale proceeds.

In closing, we wish everyone in the real estate business a happy, healthy and prosperous 1992.
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Title Annotation:Review & Forecast Section I
Author:Cerbini, Frank P.
Publication:Real Estate Weekly
Article Type:Industry Overview
Date:Jan 29, 1992
Previous Article:Predictions for the next 5 years.
Next Article:Conference Bd leases at 845 Third Avenue.

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