Real estate auctions: Structured sales for unique situations

The real estate auction is a structured sale by which any type of owner may sell any type of real estate on his or her terms and timeline. Specifically, the seller, via the auction company retained to implement the program, sets forth the property (or interest therein) that he or she wishes to sell, the terms of sale (in the purchase and sale agreement distributed to prospective buyers), and all due diligence materials (in a prospectus). Bidders will have the ability to inspect the property and all due diligence materials, including the terms of the typically non-contingent purchase and sale agreement, prior to auction-day. The auction is an extremely efficient process by which to trade real estate. While these characteristics of this unique process are valuable in virtually any context, they are particularly valuable in several, very specific contexts in which real property transfers and dispositions occur regularly. Developer/Portfolio Sales Portfolio owners wishing to sell numerous properties in the same or different asset class or geographic area may implement the auction process to execute individualized marketing programs for each asset individually, but on a simultaneous timeline. That is, a single seller can sell multiple properties in different locations, all to individual buyers (which is how price is maximized) and at the same time. One significant example of this—perhaps the fastest growing segment of the auction business nationally—includes residential developers seeking to accelerate the sale of finished inventory (of condos, single-family homes, and townhouses). Flexible and efficient programs allow developers to sell numerous units (50 condos, for example), in a single day—but each to individual buyers for retail pricing (i.e., prices associated with selling units individually as opposed to in bulk). This ability to market and sell numerous units or properties in a single day is especially valuable in this context. Partnership Dissolutions Auctions allow for fair, arms-length transactions for the sale of property owned by two or more partners who seek to maximize value. This may be relevant in numerous settings, but especially so when (a) the partners disagree generally (the auction provides comfort that all parties have had to comply with the same guidelines); (b) the partners disagree as to value; or (c) where individual partners wish to participate in the bidding for the asset(s) (the auction allows partners to compete in their individual capacity alongside other, third-party bidders). Bankruptcies and Restructurings The ability to implement the program described above allows those owning and controlling real estate (including trustees, attorneys, chief-restructuring officers, among others) to maximize value for the estate by selling assets on a timely basis and providing comfort to all parties involved that a full marketing program was implemented. By maximizing the number of prospective purchasers that are notified of the subject properties' availability and communicating a certainty of sale, interested parties can be confident that the pricing thereby achieved in fact reflects fair market value. Furthermore, a premier real estate auction company (and not a liquidation firm) which executes a proper marketing program will prevent the tainting commonly associated with the sale of distressed assets. Estate Sales Like the bankruptcy and restructuring setting, the goal in this context is to maximize value by selling for as high a price all of the assets on as quick a timeline as possible. Likewise, the transparent and arms-length nature of the auction process provides administrators and executors of the estate with a certain level of protection from collateral attack. §1031 Exchanges Since auction programs are structured sales where the seller unilaterally sets forth the timing of both the auction and closing of the property, as well as all terms of sale, the auction permits the savvy investor with a strategy that is formidable and predictable (time-wise)—crucial in complying with the strict timelines set forth in IRC §1031. Misha Haghani, Esq., is the director for Sheldon Good & Company Real Estate Auctions NorthEast, LLC, New York, N.Y.