LAS VEGAS — As co-CEO of Auction.com Commercial, Eric Paulsen has his finger on the pulse of online trends in the sale of real estate properties and loan notes. In 2011, the commercial real estate division of the Irvine, California-based company arranged the sale of 1,169 notes totaling more than $4.6 billion at a recovery rate of 52 percent.
The commercial division last year also auctioned off 1,087 real estate owned (REO) properties valued at $1.2 billion with an average recovery price at 103 percent of the reserve price.
Prior to 2011, Paulsen served as vice president of acquisitions and dispositions for Miami-based LNR Property Corp. He has more than 20 years of experience in the commercial real estate industry.
REBusinessonline caught up with Paulsen on the show floor at RECon 2012 to discuss the growing popularity of online auctions in the commercial real estate industry and some of the driving factors.
REBO: What’s the profile of the online buyer for retail properties in today’s market?
Paulsen: We literally have sold everything from the single tenant pad Starbucks to the 800,000-square-foot mall. It’s across the board nationally. It can be any retail product type, any location and in any condition. The property can have zero percent occupancy or be 100 percent occupied. The buyer is across the board as well. It can be an individual, a developer, a regional player, a bank or an institution. The fun part about it is that Ma and Pa Kettle can go head-to-head with Mr. Institutional.
REBO: Auction.com has some 126 institutional investors that utilize its services. Given their financial clout, why would it be in the best interest of institutional investors to buy or sell commercial real estate assets online?
Paulsen: We took $5 billion to market last year, and we’ll probably take $5 billion to market this year. If you want to pursue the product, it’s on the platform, so you better get comfortable with how the platform works. That’s a decent chunk of the market that you are not going to see if you are unwilling to look at the platform.
REBO: What commercial real estate property types are most popular with investors in the auction arena?
Paulsen: If I were to rank our products, multifamily is No. 1 and retail is No. 2. Next comes the niche product types such as self-storage, mobile home parks, hotels — anything that doesn’t really fit the four main food groups. Then comes office at No. 4, followed by industrial. A lot of the industrial space we’re seeing right now is functionally obsolete or vacant space for which it is difficult to find a user.
Getting back to retail, good product with good occupancy in a good location will knock it out of the park. We took 22 unanchored strip retail centers to market in the greater Phoenix area. We sold 18 of them. We didn’t sell the other four centers because we ran out of buyers. It was such a tight, compact area that we didn’t end up selling all of them. (The other four were sold at auction during the ensuing four months). We’ve had good success with strip retail centers because there is a lot of money in that pipeline. It’s a big buyer pool.
REBO: Why is it more difficult to sell office buildings online than apartments or retail?
Paulsen: It’s a matter of sophistication [and familiarity]. Everybody drives by a retail center and feels comfortable with it. Everybody knows what an apartment is, and it’s easy to manage. An office building is a product type that requires tenant improvements. It’s an ongoing cost. Historically, office buildings have tended to be owned by sophisticated owners. It wasn’t Ma and Pa that lost the building [due to foreclosure]. It was an institution that lost it, or somebody that owned a portfolio of office buildings that lost it.
REBO: What are the advantages of buying and selling properties online versus using the traditional model of marketing assets?
Paulsen: At the end of the day, it’s great exposure for the seller. We cast a huge net. Also, this isn’t your father’s auction platform right now. The world has caught up and is ready for it. We’re in the perfect storm for real estate and for auctions. There are a lot of owners in real estate who shouldn’t be owners, whether it’s an institution or an individual who simply paid too much for it.
Where else are you putting your money today? The stock market is scary. What’s your CD (certificate of deposit) bond paying right now? It’s not an inflation hedge. Real estate has some cachet and some ability to produce positive cash flow, so it’s a good investment type right now. The combination of the wrong owners and a lot of product available makes it a good time to buy.
People are also more comfortable with buying something online today, whether it’s a book on Amazon.com or something from Best Buy or Nordstrom. Taking it a step further, the technology is such that you can bid from anywhere. I’m selling stuff to the Chinese, Australians, Russians, Canadians and Kuwaitis.
A prospective buyer can bid on anything he wants while wearing his boxer shorts in his bedroom. He can download the property, analyze it, underwrite it and buy it if he really wants to without leaving his house.
So, it really is the perfect storm. The technology is available, the product type is available, the pipeline is there and there is money.
— Matt Valley