A US property auction website is coming to Europe, and could threaten some cosy jobs
A small earnest American called Ken Rivkin presented a detailed example of what geeks call “disruptive technology” at a conference in London on Monday.
Ken is co-chief executive of the commercial division of auction.com, a US online trading post for real estate. It is coming to Europe. Not that traditional auctioneers like Allsop need worry. The space auction.com is invading is occupied by investment agents and debt brokers.
Yes, you’ve heard it all before. “Disintermediation” was the fear a dozen years ago. The internet was going to allow buyers and sellers to trade electronically, without the need to pay some pesky broker. Instead the internet has simply become a wondrous way of transmitting information.
But you still need a broker to match buyers with sellers and get the best price, don’t you? Not necessarily. There is a better way. Hear Ken out.
The service is free to sellers. The buyer pays less than 1% for a £50m office block, up to 5% for small stuff. In 2011, auction.com sold 40,000 homes.
More relevant is the incursion into commercial real estate and the debt markets that began two years ago. Last year, 1,091 commercial assets worth $1.2bn were auctioned, with a success rate of 65-70%. More than 1,100 stacks of debt once worth $4.6bn in total were sold at an average 54% discount.
Sellers post details along with all the necessary paperwork and a non-negotiable sales purchase agreement. “It opens up a Pandora’s box otherwise,” says Rivkin. Buyers register which lots they want to purchase, and then prove they have the cash to pay, by providing bank assurances. After that it gets easier. Bidding opens at a predetermined time. Everyone sees the prices, but not who is bidding. The auction closes only when one buyer is left standing.
Dealing with objections
Objections? “The seller still pays because the buyer discounts the fee.” True enough. “We know the market better than these mere auctioneers.” A perennial cry, one that is frankly wearing a bit thin in a world where the buyer may come from Turkmenistan or Texas. Ken provided an example of two blocks in Glendale, California, which sold for $73m. Jones Lang LaSalle’s estimate: $65m.
Next objection. “You can’t use this method for big stuff.” You can. The Glendale blocks were sold using a two-stage process. A dozen pre-qualified bidders gave indicative prices. Five got to enter the final auction. Much the same as the traditional process really, including places at the table for brokers. Except the deal was on-market, transparent, global and quick. Compare that to broker-negotiated sales that are off-market, opaque and slow. No guesses as to who benefits from the opacity. The Glendale purchaser was Blackstone.
Final objection: “Well, OK, but who the hell are these people, anyway?” They are the people that market-leading debt service provider Hatfield Philips gave space to at its annual conference at One New Change – people who Hatfield is using to sell distressed stock in Germany, by the look of things. The auction of 40 assets valued between €500,000 and €10m takes place on 15 December. Details will begin to appear on the website next week.
This sales method does not disintermediate the broker. A broker is helping in Germany – the law demands it. Agents are at liberty to pinch the idea, and presumably will if sellers insist. What the auction.com model does have is the potential to disrupt the long-established business model by diluting the power of individual investment agents, or niche practices which trade on their contacts.
At the end of Ken’s presentation I asked if he was planning to set up in the UK. He replied with what seemed like a genuine question. “Do you think we should?” Well, it might be worth a look, Ken.
But be prepared for denigration from those who think their livelihoods might be threatened by your disruptive technology.
