PROFILES: From real estate attorneys to auctioneers, some business people have managed to make the down market pay off.
The real estate market has been in the tank for the better part of the last few years. But there is a bright spot in the sales world: the auction business.
In fact, it’s boom time for real estate auctioneers, which have seen business skyrocket as property owners and lenders increasingly auction off distressed properties.
For Kennedy-Wilson Holdings Inc., a longtime player in the field, business has never been better.
“We saw it hitting us first in 2007 and in 2008 business increased dramatically,” said Richard “Rhett” Winchell, president of Kennedy Wilson Auction Group, the auction unit of the Beverly Hills-based property manager and investor.
The unit handles all property types, though about 95 percent of the business over the last few years has involved the sale of homes by builders of condominiums and subdivisions in California, Arizona and other states. At least 50 percent of the auctions are in California, with a majority of those local.
Sometimes builders contract Kennedy Wilson to sell homes in a “close-out” sale held to finish off sales at a project. In other instances, the company will conduct “kick-start” auctions, which help new properties reach necessary critical mass – 51 percent of units sold – so that lenders will allow the buildings to open, a standard practice. Homes also are auctioned off after they have been foreclosed on by lenders.
Now, more commercial properties are expected to go on the block in the coming year as property owners have trouble refinancing and lenders move to unload assets already seized, Winchell said.
While Kennedy Wilson will occasionally hold residential auctions on site at properties, they are often held in large venues, typically hotel ballrooms. Kennedy Wilson advertises the events and prospective buyers are offered tours before bidding. Prospective buyers get prequalified with mortgage lenders so attendees are serious about making a purchase. Kennedy Wilson conducts a brief practice auction so that individuals understand the process.
“That first property – there is a lot of excitement,” Winchell said. “It is somewhat aggressive initially. (Winners) jump up; they are excited. Sometimes it’s their first home.”
Winners are then escorted to a “closing room,” where deals are completed.
The company uses three auction formats: the classic “absolute” auction, in which the property is sold to the highest qualified bidder; auctions that have minimum disclosed prices; and “unpublished reserve” auctions, which allow a seller to decline any bid. The latter are often used by sellers to better understand the market values of their properties, Winchell said.
In an unpublished reserve auction conducted by Kennedy Wilson in November, the remaining 55 units were sold at Market Lofts, a downtown L.A. condo project built in partnership by Lee Homes and CIM Group. The event, attended by 1,000 people, allowed the developer to complete sales at the 267-unit project.
However, Wayne Brandt, managing director of Newport Beach fund manager Buchanan Street Partners, a unit of downtown L.A. money manager TCW Group Inc., said he’s not sure that auctions will become a dominant way of moving distressed properties to interested buyers – as they were after the savings and loan scandal 20 year ago.
“In the 1990s it was a new phenomenon and it was a pretty efficient way to bid,” he said. “Will it be as efficient as the last cycle? It’s hard to say.”
Winchell would not disclose what the company is typically paid, but said compensation is by commission and comparable with fees that real estate brokers receive for similar sales. (Residential brokers, for example, typically get 3 percent of the sale price as commission.)
Kennedy-Wilson Holdings currently manages more than 40 million square feet of real estate in the United States, but auctions were its original business when founded in 1977 – and it never left the field.
Winchell, 47, who has worked for the company since 1984, noted that several competitors have cropped up in recent years. But, he believes that Kennedy Wilson will get more than its share of work as business ramps up in the next few years.
“A lot of our business is repeat business,” he said.
Kennedy Wilson Auction Group, Kennedy-Wilson Holdings Inc.
Beverly Hills
The Job: Conducts auctions of foreclosed properties and other real estate, including condos, subdivisions and office buildings
Clients: Builders and banks
Experience: Founded in 1977 with the auction group as its original business. Richard “Rhett” Winchell, president of the group, has been with the company since 1984.
Compensation: Commission basis, comparable with fees that real estate brokers receive for similar sales
