Lexington, KY -
Call it a sign of the times. Rising demand for services to accommodate struggling property owners compelled by a tough economy to sell in a sluggish sales environment has prompted the launch of a new firm, Schrader and Robertson Commercial Auctioneers, LLC. The company has positioned itself in anticipation of a growth market.
"We are optimistic about the long-term real estate market in Lexington," said Lexington commercial properties specialist Jamie Schrader. "Fortunately we are not as subject to some of the major real estate problems that are occurring in some of the coastal communities - certainly in Florida - or some of the high-growth communities such as Phoenix.
But with changing economic conditions, the overvalued real estate market and some of the unemployment issues, we do anticipate that there will be excess inventory in both the residential and commercial markets that will need to be sold via auction."
Walt Robertson, the Fasig Tipton chairman and president/auctioneer at Swinebroad-Denton, Inc., along with Swinebroad-Denton colleague and Keeneland Senior Auctioneer Ryan Mahan, have formed a partnership with Lexington commercial real estate specialist Jamie Schrader.
Robertson, Schrader and Mahan first worked together when the Fayette County Board of Education placed the J.R. Ewan Elementary School up for auction in the spring of 2009, "and it went very well," noted Robertson. "Then we had another sale last fall, a commercial piece of property on the interstate in Winchester, which also went very well."
Road-tested, and with the economic handwriting on the wall, the trio decided the time was right to capture a materializing market by pooling talents and resources.
They sat down with Business Lexington's Tom Martin for a discussion about the new firm and their views of the central Kentucky market.
Here are highlights of the conversation:
TM: Does the auction take the guesswork out of establishing market value?
WR (Walt Robertson): Swinebroad-Denton has done three sales of notable properties in the last six to eight months, and they've all produced in the neighborhood of 15 registered bidders. So that's 15 people at each one of these sales that are all willing, ready and able to buy the property. The only question is what the price is.
But when you have competition for anything among 15 people, the end number is going to be a fair price.
It's as simple as that; you can't argue with it.
JS (Jamie Schrader): We have a very good handle on who likes to buy property at auctions; who has the financial capacity to purchase the property at auction; who has a use for the property, once they buy it. So it's a two-step process: we're going to identify people who want or need to sell properties by auction, and then we've got this contact base that are farm owners, property owners, commercial real estate investors, end-users. We want them all together at the same time, actively bidding on our clients' property.
RM (Ryan Mahan): A big part of what we do is hold their hands through the entire process - both ends of it, buyer and seller. Unlike an open house for a home, where mom and dad go and want to see the kitchen but they have no interest in buying it, with commercial real estate, they are there for a reason. It's business
TM:
Buyer's market or seller's market?
JS:
(For) those that have cash, access to credit, an idea and intestinal fortitude, there are certainly great buying opportunities, much like the stock market when it reached its low in March. If you had cash and were an aggressive buyer at that time, you would have earned probably a 35- to 40-percent return in a nine-month to a year period. We've seen some of the same things occurring with the commercial real estate market.
TM: What is your strategy?
JS: Anybody that has surplus property, that has the cost of caring for the property including taxes, insurance and utilities, (and) that wants to sell the property in a reasonable or shorter time period, we view them as our potential clients. Some people really want to sell their property quickly, and in today's market, with credit being tight, with properties on the market for a longer period of time, the auction may be their only way to quickly sell a property.
TM: At one point in 2009, the credit market froze.
Have you seen improvement in recent months?
JS: People that have good credit and have a viable project will probably have good access to credit in our market, but it's still a challenge.
The underwriting is more stringent than in years past. You'd better have a tenant before you take on a big project.
TM: Is it more difficult in these conditions to secure that tenant?
JS: The areas that I'm seeing the most activity in are the medical field. Clearly all of the hospitals are expanding; they are leasing space from property owners.
That area has been very strong locally. I'm seeing a lot of interest on the leasing side from secondary schools, institutions not necessarily related to the University of Kentucky but trade schools that teach skills to people that are high school graduates. And then we have continued to establish a base in Lexington with a lot of data processing-type companies, such as ACS, which is a huge tenant in our marketplace. So those are the areas that we're seeing a fair amount of activity from still on the leasing side.
TM: Let's talk about the dynamics of the auction. What happens when you're up there and you have a group of people before you and you think you know what they have in mind, and they think they know where you're going to go? Tell us about this dance.
WR: Often enough we're surprised, sometimes pleasantly.
For me, to predict what a man's going to get for a piece of property, it's merely a prediction. But all the questions get answered in about 15 minutes.
RM:
There's some drama involved with it. I think there is more emotion in an auction certainly, than writing a contract and delivering it. And that's what we live by - that emotion, the theatrics of it.
It's instant commerce, belly-to-belly commerce.
WR: The other thing, Tom, is we employ absolute auctions as the normal selling process. When we advertise a property at absolute auction, the buyer that comes that day knows the property will be sold when the hammer goes down. It eliminates the whole process that is normally involved in the negotiation when purchasing a commercial property - the back and forth and the contingencies. All that is eliminated.
TM: What is required in order to bid?
JS: We can negotiate any type of arrangement, but it would not be unusual for the buyer to be required to put up 10 percent of the purchase price, nonrefundable, in good funds the day of the auction. And they will sign a contract that is not negotiated - they have seen the contract upfront at the auction - with a closing typically to occur in 30 days. It could be changed. We can require a higher down payment. There may be a longer period to close, but everything is spelled out in concise terms on the front end. ...
It depends a little bit on the type of property and the dollar amount that is involved. For instance, when Walt and Ryan sold Calumet Farm and it was a $17 million auction, that eliminated a whole lot of buyers. And before they come and bid, they better have some money up [front], and you need to have some confidence in their ability to close.
TM: You really marketed that auction, didn't you?
RM: We did. This was a pretty interesting play. We marketed it all over the world and through equine and financial publications the world over - The Wall Street Journal, London Financial Times, Nikkei in Japan, plus all of the world's horse magazines. But in addition to that, we made contact with whoever we thought would have the potential - and that's a pretty short list, the people that would have the potential to give $15 to $20 million for a horse farm. By the time we boiled it down, we came up with 40 names that could possibly have the wherewithal and the interest to buy Calumet Farm. Ryan and I sent out 40 letters to those people and included bidder packets and everything they needed. We contacted 40 people and from that short list of 40 people, we ended up with four registered bidders, and all four of them bid.
TM: Of course, Calumet is an iconic farm, but is that how you operate on a smaller scale?
RM: Absolutely. We've got to have a comfort level with every bidder that we deal with.
JS: Another thing that is very interesting:
after we've advertised the property widely, after we've contacted all the potential bidders, after we've conducted a professional auction and done everything the right way, that property sells for what it's worth.
Whether the seller is particularly pleased with the number or not, that's the value. And that's the thing that's interesting to me is that when it's a competitive market, everybody is bidding, and it's sold for what it's worth.
TM: One more thing. How do you auctioneers talk so fast?
RM: It just comes out that way.
WR: A lot of practice.