Tranzon Auction Properties - Real Estate Auction Blog

I tend to write more on real estate and finance and less on Auctions, so here’s a bit of fun auction news! Denise is in my CAI Class and along with being a fantastic auctioneer is very thoughtful and entrepreneurial person.

Auctioneer Gives Crash Course on Fast-Talking Style

Tell Me More, January 3, 2008 · It’s the familiar, but sometimes unintelligible voice standing out among all the rest: that fast-talking, number-crunching auctioneer. Denise Shearin shares tips and divulges insider info on the world of auction blocks. Shearin was recently named the International Auction Champion.

I think we’re going to see more of this in ‘08!

WSJ.com - Luminent Mortgage.

This type of thing is indicative of a variety of issues surrounding real estate right now. What it will eventually come down to is when, where and who is going to eat the actual loss in value of real estate collateral associated with the plethora of financial instruments securing them. As a long time asset manager said to me that other day when discussing a variety of troubled real estate projects around the country…”you can’t fudge with the value of real estate like you can with other assets. At some point someone is going to have to own up to the loss.” So for the next several months to years I think we’re going to see attorneys racking up some significant billable hours in sorting through who owns what.

Happy New Year. Be safe!

This is a long time coming for our industry and i’m very excited about it. A quick editorial comment though…as with all things technological the system has a couple of bugs that are being worked through.

Press Release Source: National Auctioneers Association

National Auctioneers Association Launches Real Estate Auction MLS.
Thursday December 13, 8:00 am ET

OVERLAND PARK, Kan.–(BUSINESS WIRE)–The National Auctioneers Association, the world’s largest professional association representing the interests of Auctioneers, recently launched a multiple listing service (MLS) designed specifically for real estate auctions. As consumer interest in auctions grows, consumers are turning to auctions to buy and sell real estate. The newly launched website, www.NAARealEstateAuctions.com., provides consumers with up-to-date information on real estate auctions taking place in their area. Consumers can utilize the website to view residential, commercial, agricultural, and time share real estate scheduled to be sold at auction.

“The creation of the NAA Real Estate Auction MLS provides consumers with a convenient approach to researching upcoming auctions,” said NAA president Tommy Williams. “In addition to traditional marketing campaigns promoting upcoming auctions, auctioneers and their clients now have the ability to market their sale to a larger audience of prospective bidders.”

Residential real estate auction is the fastest growing segment of the auction industry. Between 2003 and 2006, gross revenue of residential real estate sold at auction has increased 39%. In 2006, over $16 billion was sold in residential real estate. In addition to residential real estate auctions, over $25 billion was sold in land/agricultural real estate and $15 billion in commercial/industrial real estate in 2006.

About the NAA: Headquartered in Overland Park, Kansas, the National Auctioneers Association (NAA) represents the interests of approximately 6,000 auctioneers in the United States, Canada and across the world. Founded in 1949, the mission of the NAA is to promote the auction method of marketing and enhancing the professionalism of its members through education and technology. In 2006, the auction industry grew by 7.1% with over $257 billion in goods and services sold. To learn more about Auctioneers, auctions and the NAA visit: www.auctioneers.org.

Contact:
National Auctioneers Association
Chris Longly, 913-541-8084 ext. 31

Here a just a few Headlines from the American Bankruptcy Journal:

1. Foreclosure Reach Record Highs - Click Here for CNN Money Article.

2. Auto Loan Deliquencies Surge - Click Here for WSJ Article

3. Central Banks Launch Effort to Free Up Credit - Click Here for WSJ Article

4. Commentary: Analysts Late to the Alarm on Subprime Crisis - Click here for Washington Post Article

And this is just the last two weeks. My prediction (and I am definitely not alone or unique in this opinion)…the storm has just started

Man oh Man, the latest summary from the Costar Watch List sure is depressing. Quickly gets me thinking…”How do I advise clients? Buy? Sell? Hold?” The quick answer is if you can afford it and SELL sooner vs. hedging for a better season in the spring. Unfortunately what I keep returning to is that there is just no easy answer and every situation has to be addressed on a case-by-case basis. The good news is our auctions are still producing buyers and we are still moving product. Though as we mentioned in the Tranzon Auction Leader a few posts ago, buyers are leary. Compound this with the fact that the media isn’t doing anyone a favor using the real estate market and foreclosure news as the topic of the day, the mediocre response from consumers during the holiday season and the outlook in the Northeast of a long dark winter with expensive oil and we have a decidedly unstable market.

The Following is excerpted from the report - Click Here for entire article.

Written by Mark Heschmeyer
Housing Outlook Dims for 2008

Is a Complete Recession Unavoidable?

Thanksgiving may have kicked off the time for holiday cheer, but the news on the nation’s housing front has been anything but cheery.

Report after report released in the past two weeks forecast bleak times ahead with more foreclosures, lower home values, dampening consumer spending and make credit even harder to come by for a long time. Some suggest that a complete recession is unavoidable.

The Federal Reserve Bank of Dallas said that the housing market’s adjustment to tighter lending standards is likely to be prolonged, according to the November issue of the Economic Letter.

“The muted outlook for home-price appreciation, coupled with the resetting of many nonprime interest rates, suggests foreclosures will increase for some time,” economics writer Danielle DiMartino and vice president and senior policy advisor John V. Duca wrote in a Fed report.

The sharp downturn in home-price appreciation may also dampen consumer spending growth, an effect that may worsen if the pullback in mortgage availability limits people’s ability to borrow against their homes, the authors state.

The slump in global credit markets will force banks, brokerages and hedge funds to cut lending by $2 trillion, triggering the risk of a “substantial recession” in the U.S., according to Goldman Sachs Group Inc.

The losses related to record U.S. home foreclosures may be as high as $400 billion for financial companies, wrote Jan Hatzius, chief economist at Goldman in New York. The effects may be amplified tenfold as companies that borrowed to finance their investments scale back lending, the report said.

“The likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognized,” Hatzius wrote. “It is easy to see how such a shock could produce a substantial recession”‘ or “a long period of very sluggish growth.”

With home prices declining, consumer credit deterioration is not far off, Goldman analyst said. The downturn in housing is spilling over into employment in some states and is leading to high consumer losses.

Adding to the problem is the fact that another $500 billion of adjustable-rate mortgages (ARMs) are scheduled to reset during the next two years. According to Laurie Goodman, managing director and global co-head of fixed-income research at UBS AG, the glut of ARMs is sparking a cycle that will likely drive U.S. home prices down farther in 2008.

“It’s a sort of vicious cycle that we will muddle through, but it will be painful,” Goodman said.

Foreclosure Impact Widespread

According to a report prepared by Global Insight, Inc. for the U.S. Conference of Mayors and The Council for the New American City, the foreclosure crisis will have profound economic effects in 2008.

U.S. GDP will be $166 billion lower as a result, because new residential investment will be weaker, lowering spending and income across the construction industries, and because consumer spending is curtailed as homeowners respond to decreased home equity wealth.

Both of these spending impacts have multiplier effects across the economy as lower incomes decrease demand for other goods and services. As a result, there will be 524,000 fewer jobs created across the country in 2008.

Homeowners will also see property values decline by $1.2 trillion in 2008 due to three factors.

The initial adjustment of over-heated home prices to the combination of weaker market demand and large inventories of homes for sale would have reduced values by $676 billion in 2008. Now, due to the foreclosure and mortgage crisis, home values will decline further, by an additional $519 billion. Foreclosures in 2008 will increase by at least 1.4 million. These homes represent a market value of $316 billion.

By no stretch do I consider myself an academic, but I do enjoy macro thought process and one of the elements that always tickles me is the incredible opportunities available for nimble and flexible entrepreneurs. Call them what you will, opportunistic lenders, off-street lenders, hard money guys, lend to own, and putting aside the scale (thousands to billions), it appears the current real estate market is re-opening doors to these lenders.

One of my mentors and friends regularly uses a short term lender to finance his projects. This is a guy who is well heeled, very credit worthy and would easily qualify for cheaper conventional financing. People regularly ask him, “why do you continue to pay the astronomically high costs and fees charged by these short terms loans when you could save yourself 2 to 5 points by going with a more traditional bank?”. His response is generally something like “banks are too much work, I just want to know I can get the money with the least amount of hassle and paperwork, filling out 7000 pages of documents and paying attorneys exorbitant fees to review it all just isn’t how I want to spend my time.” From this article it sounds like more and more investors are returning to this mentality:

Off-Street Lenders Step Up
Commercial Developers Find
New Loan Sources Amid Fading
Of Mortgage-Backed Securities
By ANGELA PRUITT
November 28, 2007; Page B7

As Wall Street banks tighten their purse strings on commercial real-estate financing, other lenders are ready to step in.

Non-U.S. banks, insurance companies and smaller real-estate shops are poised for robust business from anxious developers finding it difficult to drum up money in the market for commercial-mortgage-backed securities.

Developers say they are being asked to put up about 25% of the financing, a substantial increase from the 10% to 15% permitted before credit conditions tightened. The stricter standards mark a departure from the loans offered from mid-2006 to mid-2007, when Wall Street banks were underwriting interest-free loans and debt based on future revenue, not current cash flow.

Issuance of commercial-mortgage-backed securities world-wide was on a record pace until September, when the market sustained a severe slowdown. Only $6.2 billion of the securities were issued in October, compared with $34.4 billion in August, according to Commercial Mortgage Alert, a trade publication.

“In light of the problems with the securitized markets,” balance-sheet lenders have greater opportunity to compete, says Matthew Galligan, managing director of the U.S. property-finance division of Bank of Ireland PLC. “And that is what we are doing,” he says.

The bank set up the property business in July, its first in the U.S., concentrating on the Boston-to-Washington corridor. Mr. Galligan estimated the unit would generate $1 billion in business next year. So far, the bank has completed one deal and is committed to two others.

Another opportunistic lender is CIT Commercial Real Estate, a division of CIT Group Inc., which says it is attracting new customers unable to get financing from traditional Wall Street sources. Tim Zietara, a CIT managing director, says most calls from borrowers are from those seemingly willing to pay a premium for knowing they have a lender that can close a transaction, and aren’t just taking the lowest quote.

“Borrowers are really searching for a certainty of execution. That seems to be first and foremost for direct deals that we originate,” Mr. Zietara says. He says the firm is also seizing opportunities from balance-sheet lending.

CIT is considered a middle-market lender. Mr. Zietara said the firm is bullish on the multifamily and office sectors, but he declined to specify the volume of deals the firm is handling.

Commercial real estate has held up relatively well amid the crisis in the U.S. residential-property market, yet a report from Moody’s Investors Service last week indicated the industry is starting to feel the squeeze of the credit crunch. It said the value of commercial property declined 1.2% in September from August.

But few industry experts think a correction will be as painful or pervasive as witnessed in residential real estate. A combination of limited supply, favorable interest rates and the absence of speculative development is expected to cushion the blow. A lot of untapped money is also seen waiting on the sidelines until dust from the residential situation settles.

Commercial Stays Strong

Quarterly Newsletter - Fall 2007

The Tranzon Auction Leader is published quarterly by Tranzon LLC, national experts in accelerated marketing and auction sales. This E-newsletter focuses on trends, auction highlights, and expert analyses on how a professionally marketed auction may maximize an asset’s value. Email Mike Carey with “subscribe” in the subject line and I will add you to our mailing list.

Commercial property markets remain quite solid. We are seeing good success in our auctions of commercial properties. We have noted that pricing has leveled off, but it has done so at strong levels. The underlying fundamentals appear to remain favorable.

Important to auction sellers, these strong markets have kept appetites strong for properties that have a “story” as many auction properties do. Buyers are willing to purchase properties with issues or requiring some effort to stabilize.

On the financing side, we are seeing lender tightening in this market also for the smaller, less financially strong investor-buyer. This has been going on for most of 2007 and does not appear to have gotten materially more difficult.

In recent months we have had successful sales of assisted living facilities (both operating and closed), convenience stores/service stations, retail, small office, apartments and industrial property. Commercial property is moving at auction pretty much across the board.

Properties generating cash flows are still in high demand and, as noted, there is still an appetite for turnaround situations. If there is a weakness we have detected, it is in land sales, where some of the speculative bloom has come off the rose.

Our observation of rosy conditions in the commercial area is not without some concern. We note, as do others, the relaxed underwriting of loans in recent years and the over-leveraging that appears to have been permitted in some situations. We do expect a moderate worsening in the performance of commercial loan portfolios, but we are not looking for anything resembling what we have seen in the residential market.

Quarterly Newsletter - Fall 2007

The Tranzon Auction Leader is published quarterly by Tranzon LLC, national experts in accelerated marketing and auction sales. This E-newsletter focuses on trends, auction highlights, and expert analyses on how a professionally marketed auction may maximize an asset’s value. Email Mike Carey with “subscribe” in the subject line and I will add you to our mailing list.

It’s Been a Long Hot Summer

The title of our opening article in the Spring 2007 newsletter read “The Big News in the Residential Market - Lenders Tighten Their Belts”.

This past August, everyone’s belts tightened so much that the markets could not breathe. We will not repeat the widely reported seizing in the debt markets on Wall Street. We will focus on what we are seeing on Main Street.

In the Spring Newsletter we noted that if liquidity continues to retract, Real Estate problems would start surfacing in certain markets that heretofore have been pretty healthy. We have seen that play out. Residential markets that were strong throughout the adjustment up through this summer seem to have slowed measurably. The residential slowdown appears pretty widespread.

We have just started seeing a return to some semblance of normalcy in many markets. The “headline shock” of the July and August credit market problems is appearing to wear off. Buyers and sellers are slowly coming back into the market. Attendance at Tranzon residential auctions across the country has been steadily on the rise giving credence to marketing that stands out.

There seems to be ample liquidity to fund new home purchases and sound investment property. Anecdotally, we have seen the “informal” sub-prime market come to life in the past month after lying dormant for years. Entrepreneurs, who prior to recent years provided much of the capital to “less-than-prime” borrowers, are back in business. And they have money to lend.

So we are not seeing conditions commensurate with a real estate debacle. Liquidity exists. And buyers have the interest in buying property, the need to buy property, and the money with which to buy property. What they do not have is confidence, which will take awhile.

All of which makes for a challenging market for residential real estate. At the same time that we have a huge pool of property for sale, we have a diminished pool of buyers. Today’s challenge in brokerage marketing is how to make a property stand out from the sea of opportunities. Effective auction marketing has been accomplishing this by communicating a sense of urgency and opportunity to the market, much more so than at any time in recent years. Tranzon’s success rates (percentage sold to percentage deeds offered) have increased sharply over the last three months.

Another challenge is dealing with an environment of falling values. We say “values” rather than “pricing” on purpose. It appears that in most of our markets, prices are not coming down to a level to accurately reflect current “values”. One reason we believe sales have slowed so much is that sellers have not, or cannot, adjust their expectations to today’s environment. This is a market that relates well to auctions, where the auction market sets the pricing, thus the value, for the sellers to approve, or reject.

I love it when I’m getting my news and I hear something so utterly refreshing and real that I want to scream out loud “amen brother!”. This happened last night while listening to the Marketplace evening report.

There is one line imparticular that stood out for me “So, look, let’s make a deal. Some money is better than no money.” Could that line be any more poignant?

Link to Audio File

TEXT OF STORY

KAI RYSSDAL: Home ownership in this country’s as high as its ever been — almost 70 percent of Americans own a house. If you’ve been reading the business pages, though, you know there’s a catch. It’s spelled subprimes. A lot of recent buyers are losing equity in their homes as the housing market fades. Commentator and economist Austan Goolsbee says if you’re one of them, it’s time to face reality.

Austan Goolsbee: When housing prices go down, there’s always a guy on your street with an insanely high price. When you say prices are down, he’s got fingers in his ears saying “la, la, la, la!”

Turns out almost everybody refuses to sell their house for less than what they paid. The explanation you hear is that they can’t afford to lose the money. Economists say they’re crazy. The fact is they’ve already lost the money. They lost it when house prices fell. Listing your house for more money is not going to change that.

One of the iron laws of economics is stuff is worth what it’s worth. Nobody cares what you originally paid. So if you ask too much, you’re setting yourself up for a fall. A big one.

Take Boston. In the early 1990s, when condo prices fell 40 percent, the people who bought high set their prices much higher than people selling identical condos they bought for less.

There was so much overpriced real estate that the entire market went into a deep freeze. More than 70 percent of the properties took longer than six months to sell.

Now that’s threatening to repeat itself all over the country. And when housing markets freeze up, it means bad, bad things for the economy. It means fewer house sales, which means fewer sales of new furniture, new stoves, and new plasma TVs.

Face it. Who likes getting up early every day and having people traipse through your bathrooms and rejecting you over and over?

So, look, let’s make a deal. Some money is better than no money. It’s better for you. It’s better for everyone. You’ll unload your house and buy something else and buy stuff to go in it.

Holding out for the high price of your dreams is not going to work and is setting us all up for a great big recession.

So get real, people. This ain’t fantasy land.

RYSSDAL: Austan Goolsbee is a professor of economics at the University of Chicago Graduate School of Business. He’s also an advisor to Barack Obama’s presidential campaign

Brecht and I will be covering the Tranzon National Booth at the upcoming TMA National Convention at the Copley Marriott. Hope to see you there.

http://www.turnaround.org/calendarDetail.asp?objectID=4978&curPage=1