Brokers, Auctioneers in Bid for RTC Business : Property: Competition is keen to get some of the business of selling thousands of assets of defunct S&Ls;.

By RON GALPERIN

March 11, 1990 12 AM PT

<i> Galperin is a Los Angeles-based free-lance writer who has covered the commercial real estate scene for several years</i>

The bidding war has started.

Real estate brokers nationwide are teaming up with auctioneers to offer sellers one more incentive for signing with them. And real estate auctioneers are trying to take their image beyond the courthouse steps by planning more upscale sales to the public.

Everybody wants to claim a part of the more than 30,000 properties that are to be sold through the Resolution Trust Corp., the agency charged with liquidating assets of defunct thrift institutions.

The numbers are staggering. Properties for sale on the RTC’s latest list fill 3,000 pages in nearly four volumes.

And there’s something for everyone: A country club with no golf course, a shopping center with no street access and Texas condos without air conditioning.

Serious buyers, however, may have an unparalleled opportunity to benefit where others have lost.

Auctions play a big part in the RTC plans to get all these properties off its books and back in the private sector. That’s where brokers and auctioneers see an opportunity for themselves.

Real estate brokers such as Grubb & Ellis, Cushman & Wakefield and Coldwell Banker already have divisions set up to capitalize on the opportunity. Several other companies are studying the matter, and so is just about everyone else in the commercial scene.

Grubb & Ellis Co. is planning to launch its joint venture with auctioneer Ross Dove Co. by offering $100 million in properties at an auction set for late spring in Los Angeles.

For now, the companies’ strategy is to persuade troubled lenders to let them sell their real estate portfolio before the feds move in and do it for them. At the same time, Grubb & Ellis Asset Services is lobbying to become a major contractor for RTC property sales.

California will prove especially fertile ground.

Besides being the home to more than $4 billion in repossessed S&L; assets, California also has a large number of potential buyers. About 60% of distressed properties in Arizona, said Foster City-based auctioneer Ross Dove, are bought by Southern California investors.

Grubb & Ellis plans to assign each auction property to a broker and at the same time, try to market it conventionally. Since every auction generates thousands of inquiries, the company will turn those over to brokers, too--creating a new pool of business prospects.

“The thing that attracts bidders to auctions is the idea that they may get a bargain,” said Robert C. Hildebran, president of Grubb & Ellis Asset Services Co. in San Francisco. “The reality is that a buyer may bid more at auction than at the negotiation table. . . . Auctioneers will tell you that record prices are almost always set at auctions.”

“There is nothing that makes a property more attractive to a buyer than the knowledge that someone else wants it too,” reasoned Hildebran. “It creates a different psychological mind-set.”

It is through that mind-set that big-name brokers such as Grubb & Ellis, Coldwell Banker and Cushman & Wakefield hope to open up for themselves an altogether new market. Said Hildebran: “I see no reason why in 1991 we couldn’t be closing $1 billion in auction sales.”

“Real estate auctions are coming out of the Dark Ages,” claimed Earl Reiss, executive vice president at Cushman & Wakefield Inc. in New York.

Last year, his company teamed up with auctioneer Christie’s for a one-half hour sale of more than $40 million in properties offered by the Federal Deposit Insurance Corp.

Interested buyers had to front a $250 deposit for information on each property and a 10% percent cashier’s check or letter of credit on any property they wanted to bid on. Buyers had another 60 days to pay the balance or lose their deposit.

Such high-brow ground rules, Reiss said, helped keep out the “riffraff.”

Indeed, real estate auctioneers want nothing more than to elevate their reputation.

For the most part, they’re perceived as an option of last resort. In contrast, art auctioneers are a generally respected lot, and usually the first stop for any serious seller.

Kennedy-Wilson Inc. of Santa Monica sponsors about 20 real estate auctions a year and predicts an even busier future.

“Conventional sales will still be a big part of the RTC program,” said Holly Burgin, senior vice president at Kennedy-Wilson. But for many properties, auctions will be the only way to go.

The key to a successful auction is offering buyers a discount of what they would likely pay buying the same property through a brokerage. “If buyers don’t perceive a bargain, they won’t come,” she said. “Buyers are pretty well educated and they know what value is.”

Generally, Burgin added, her company starts the bidding at 25% to 30% below what the auctioneer predicts will be the high bid. It’s this strategy, she says, that has helped her win the business of First Interstate Bank, Bank of America, Security Pacific National Bank and the General Services Administration.

A growing interest in real estate auctions has also helped the company expand operations in Texas, Arizona, New Jersey and Washington.

Coldwell Banker also is planning to pursue more auctions nationwide. Instead of public auctions, however, Coldwell prefers to think in terms of sealed-bid auctions that provide buyers a bit more anonymity and allow for more behind-the-scenes maneuvering.

“Only a small number of buyers know how to deal with auctions,” said James W. Field, manager of the company’s Portfolio Disposition Services.

“I’m an old-line real estate type,” he said. “I’m not convinced you maximize value at a public auction.”

Such activities also pose a problem of internal competition, Field said. “Our feeling right now is that Coldwell Banker shouldn’t be in competition with its own brokers.”

And, while auctions may be particularly effective for condos and small commercial properties, Field said, complex purchases that require significant research by the buyer may not be at all suited to an auction.

Auctions have the possibility of backfiring on a brokerage if the buyer realizes he or she has made a mistake. They’ll be unlikely to return as Coldwell Banker clients. At auctions, Field said, the key is to “get people to bid before they can think.”

“Everybody thinks auctions are fabulous and wants to jump onto the bandwagon,” observes Mario Piatelli, a 40-year auctioneer with the Piatelli Co. in Beverly Hills.

“Everybody thinks auctions are a cure-all for overpriced property,” he said, but in reality, the RTC will have to offer some bargains if it expects to dispose of its massive portfolio.

Piatelli’s most recent auction at the Los Angeles Convention Center drew more than 5,000 potential bidders--all of them looking to get a great deal.

Piatelli also hopes to be among about a dozen major auction contractors selected by the RTC. His expectations, however, are tempered by years of experience on the auction circuit.

The potential for profits is there, he said, “but it’s a very tough business.”

Development

--The Allen I. Kay Cos. of Bethesda, Md., and Mitsui Kenetsu of California Inc. have completed the $52-million La Jolla Executive Tower at 4225 Executive Square in what’s known as the Golden Triangle. The project is 15 stories tall and includes 225,000 square feet of office space.

--Six Southern California commercial brokerage firms have joined Orange County’s Centraplex consortium, founded last year by top developers in the central part of the county to promote their shared interests.

The consortium now includes Burnham USA, Davis Developments, Hillman Properties, Koll Co., Birtcher, Huntington Seacliff Corp., IDM Properties, Grubb & Ellis, Cushman & Wakefield, Coldwell Banker, Daum Commercial Industrial Real Estate, the Seeley Co. and Lee & Associates.

--Weyerhaeuser Co. has started initial work on two office buildings at Santa Monica Boulevard and Westholme Avenue in West Los Angeles that will total 170,000 square feet.

The company has already moved several apartment units down the block and plans to integrate the new and old structures as part of its $50 million project. The three-story buildings will stretch almost two full blocks along Santa Monica and are planned for completion in late 1991. Sales

--Trammell Crow Co. completed its purchase late last month of more than $300 million in properties from Pan American Properties--the U.S. subsidiary of the British National Coal Board Pension Funds. Trammell Crow field offices in conjunction with Trammell Crow Equity Partners II, along with an investment fund controlled by the company, are the buyers.

The portfolio makes up 3 million square feet of office and industrial space, including the 14-story Linder Plaza in downtown Los Angeles.

--Bentall Properties of Vancouver, Canada has bought two office buildings at One Pacific Plaza in Huntington Beach for a total of $34 million. Seller was FIMSA Syndication of Pasadena; broker was Meridian Pacific of Irvine.

Leases

--American Savings Bank has moved its administrative headquarters to two buildings totaling 275,000 square feet at Irvine Plaza as part of a 15-year lease valued at $40 million to $50 million.

Late last year, a unit of the Robert M. Bass Group purchased these same two buildings from developer Hillman Properties.

--La Salle Paper Co. Inc. signed a 15-year, $18-million lease for a facility under construction at Pacific Springs, a new 41-acre industrial park in Santa Fe Springs. The 238,000-square-foot building is on 11 acres at the southwest corner of Slauson and Sorensen avenues and is being developed by Santa Fe Pacific Realty.

--Katz Communications has signed a $10-million, 10-year lease with Prentiss Properties Ltd. Inc. for more than 25,000 square feet of office space at the 22-story 6500 Wilshire Blvd. in Los Angeles. Grubb & Ellis negotiated for the broadcast media representation firm; Prentiss represented itself.

--Exquisite Form Industries Inc.--a New York-based manufacturer and distributor of women’s clothing--signed a 10-year lease worth $12.7 million for a 300,160-square-foot facility to be located in Ontario’s California Commerce Center. Developer Searles Partners was represented in negotiations by Coldwell Banker. Cushman Realty Corp. represented the tenant.

--Consumer electronics retailer Silo has leased 318,000 square feet of distribution space in Fontana’s Lincoln Industrial Center. The Staubach Co. represented Silo in its 10-year, $9.3-million lease. Coldwell Banker represented the lessor.

Galperin is a Los Angeles-based free-lance writer who has covered the commercial real estate scene for several years. News releases and column inquiries should be mailed to 8306 Wilshire Blvd., No. 7078, Beverly Hills, Calif. 90211.