The Tranzon Auction Leader
Volume IV - Winter, 2005
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.
Valuable Service Growing
2004 marked Tranzon's fourth year in business. We had another record year, raising the bar for 2005. On average we auction about three properties every day of the year or one every eight hours. Our auctioned properties' sales volume and number of properties auctioned both increased by double digits last year over 2003.
The Tranzon "story" is not well known in the real estate world. This is one of our challenges…to spread the word of the benefits of real estate auctions while at the same time educating the market of Tranzon's value proposition, our local-national strategy. We seek to bring to our client base the resources of a national organization, with the benefits of local, regional focus and care for our clients.
Through four years the verdict is clearly in-it works! We look forward to greater success in 2005. And we will do it, again, by providing a valuable service to our growing client base.
Tranzon Enhances Services to Industrial Sellers
Tranzon welcomes Transportation Properties Company of San Diego, California, as its newest member company. TPC is a nine-year old commercial real estate firm specializing in industrial and transportation properties, through its San Diego and Seattle, Washington offices.
Those of us in the industry know TPC as the company that executed one of the largest real estate bankruptcy liquidations in history. Using the auction method, TPC liquidated almost $400 million of real estate for Consolidated Freightways. This extraordinarily successful sales effort occurred over a period of almost three years.
TPC's highly regarded staff is now a resource available to the entire Tranzon client base. As a member of Tranzon, TPC is broadening its services to real estate owners in serveral different specialties and areas. We welcome TPC President Steve Shields and his high performing associates to Tranzon.
Concern For The Year Ahead
The
item that seems to be on most real estate professional's minds lately is high
valuations. At recent conferences and in one-on-one meetings, real estate
participants seem to be in awe of pricing in many market segments. Cap rates
are historically very low on income producing properties. A recent West Coast
industrial/office property that went to Tranzon auction sold at approximately a
4% cap rate! Valuations on residential property, particularly on
the two coasts, is jaw-dropping in many instances.
Short-term interest rates increased in 2004 with five boosts of .25% each in the discount rate announced by the Federal Reserve. This was followed by another quarter-point increase February 2. The Fed's latest announcement also left in place the expectation of further "measured" increases.
Despite a huge increase in oil prices and an increase in inflation in 2004, long-term interest rates have remained largely unchanged, which has kept long-term money quite affordable. Capital for real estate investment continues to be plentiful and available to finance deals being consummated at historically high valuations.
The economy chugged along quite nicely in 2004. While job creation has not been strong by historical standards, it has picked up noticeably in recent months. Fourth quarter GDP was a tad lighter than expected but still quite respectable. Corporate earnings, as indicated by fourth quarter earnings reports in January and early February, appear reasonably strong. The U.S. consumer keeps on spending (and borrowing!).
On the negative side of the ledger, our government keeps on plunging further into debt and our trade deficit is enormous. This, in our mind, creates the biggest risk to the economy and the real estate market. If foreigners stop funding our economy, long-term rates may increase significantly, and U.S. policymakers will be in no position to halt this rise. Despite this very real concern, we do not think it will manifest in a "crisis". It seems to us that foreign providers of capital would suffer the consequences of their own actions if they were to withdraw support for our investment needs.
Despite the uneasiness we have and share with others in the real estate market, we do not see the prospect for a "crash" or a "popping" of the "bubble". Perhaps a moderation in prices or a slow deflation of the balloon. But no bust.
What We Are Seeing in the Markets
The biggest problem areas we see
at auction continue to be hotels, gas station/convenience stores and select
retail (some big box, some second tier shopping centers). We are also beginning
to see weakness in some "small box" retail categories. At this point, we are
seeing problems in the automotive specialty property type. This is an area that
we pinpointed about one year ago as one in which we expected weakness. Tranzon
completed a successful auction of a portfolio of "auto lube facilities" in the
Houston metropolitan area in January (all of which sold and closed within 30
days!) and we are in the midst of another offering of these types of facilities
in the Dallas area presently.
As we noted in our last letter, while the "problem" areas remain the same for the most part, we continue to see increased interest by buyers for these properties. With few exceptions, Tranzon is successfully moving problem assets at auction. There is so much money looking for a home in real estate today that very few assets are being ignored, no matter how troubled they may be.
As everyone knows, the apartment market is hot. As maybe some do not know, even the more difficult apartment properties, those with significant issues, are doing well at Tranzon auction. We are seeing inquiry rates for apartments at almost two times what we see for other income producing assets of similar value. The prices realized by our apartment sellers at auction reflect this powerful interest. A recent auction of a modest problem apartment property in Tennessee drew a contract price of just under $900,000 as compared to a $650K appraisal and BPOs below $500K. This property drew 133 inquirers and eleven registered bidders to the auction.
Multi-family fundamentals have suffered in the past three years as record low residential mortgage interest rates have sparked a home-buying spree that has raised vacancy rates and limited pricing leverage for landlords. In addition, the anemic job growth in the current economic recovery has hurt apartment demand. These factors have pressured apartment owners, causing many to fail. With cash flow tight, maintenance and repairs were often neglected resulting in lenders and investors now holding problem multi-family properties. With housing prices increasing quickly, impacting affordability, much of the new home demand satisfied, and an increase in job creation in recent months, apartment fundamentals seem to be firming.
The combination of investors seeing opportunity in problem multi-family properties and the view that fundamentals for the sector are on the mend, has led to strong investor demand for these properties at auction. Many of our apartment properties in recent months had ten or more registered bidders competing at auction.
We continue to see very little office product in the distressed or non-distressed category. In most of our markets the office vacancy rates are improving, in some cases faster than we would expect. For office product that goes to auction, demand and pricing is quite strong.
While the high end residential market seems to have slowed, the "affordable" price segments in the markets we serve remain robust. Prices seem to keep rising, outpacing income growth by a wide margin. In this market, buyers and sellers can continue to trade inflated prices for a while. It is foolish to even try and figure out when this will end.
In the meantime, auctions
provide a terrific answer to selling a residential property in a hot market.
Rather than listing the property at a given price and risk being way wrong, the
auction lets the power of the market and free competition determine pricing. We
recently auctioned a somewhat unique property. The property was unique due to
its historic nature. There were no comps for this 1830's vintage home, which
was in a great location and a great example of early 19th century architecture,
but was largely functionally obsolete. This property went to auction, attracted
13 bidders, and sold for 25% higher than the property was going to be listed
for. It is not that the property sold at auction for higher than it was worth,
it was that the listing price would have been set at materially below what the
property was really worth.
Overall, our guess is that price increases will moderate this year in most markets and that time on market will begin to extend. We are expecting our residential business to increase in 2005 as more buyers become frustrated with longer listing times using conventional sales methods. We began to see signs of this late in 2004 and continue to see signs of a slowing market this year.
Finally, land continues to sell well. This property type
is always a strong one for the auction sales method. Residential development
property is in strong demand to fuel the housing boom nationwide and investor
appetites. Farm land continues to garner good prices, not spectacular but OK.
Well-located commercial development property continues to do well.
The Power of Auction Marketing and the Power of Tranzon
In an environment where there is plenty of money available to finance real estate and 1031 money chasing deals, tremendous interest on the part of both institutions and individuals to invest in real estate, and historically high levels of valuation, the power of auction marketing is something many sellers of real estate should consider. Remember the two key components of auction marketing are: (1) a definite timetable to sell your property and (2) a competitive bidding environment.
Combine this with the national buyer database that exposes your property to interested real estate buyers across the country at little cost, and marketing reach and expertise of Tranzon, and you have a potent real estate sales option at your disposal. Tranzon's website, averaging one million hits per month and listing 50-100 auction investment grade properties at any one time, is one of the most viewed real estate auction websites today.
About Tranzon
Tranzon is a unique organization in the real estate industry. We are a real estate auction group founded on the premise that combining the powerful auction selling process with a highly professional organization with national resources, and regional member companies having local market knowledge, offers a compelling value proposition to sellers of real estate desiring to sell their property for the highest price possible in the shortest time possible. The member companies of Tranzon have experience in selling virtually all types of property and our staff includes among the most respected names in the industry with backgrounds in finance, law, and accounting to name just a few. Tranzon member companies auction over 1,000 properties every year. Since our founding in November 2000, we have conducted auctions in 45 states and the District of Columbia generating over $500 million in sales proceeds for our clients.
Tranzon member companies are independently owned and operated. References to "Tranzon" refer to Tranzon, LLC, and its member companies collectively.
We are excited about our business and would welcome the opportunity to speak with you directly about our company and capabilities.
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