Clay & Company » A Texas Commercial Real Estate Blog

NEW YORK CITY-The slow pace of development following the boom-bust years of the economic downturn are actually having a somewhat positive impact on pricing in 2012. Speakers during the second annual Urban Land Institute “Real Estate Finance and Investment” conference agreed that while the commercial real estate market is seeing very little new construction, property values for existing buildings are going up—though headwinds remain.

“The most important thing are fundamentals: net operating income, rental level growth and occupancy. NOIs are actually moving upward quite nicely, and they will continue to move up nicely unless we hit a traumatic double-dip recession,” said Stephen J. Furnary, chairman and CEO, Clarion Partners, who keynoted the two-day event at the Sentry Conference Center in Midtown. “We have a lot of capital available to real estate, so it’s not capital starved, but on the other hand, the real estate market is actually improving.”

Via Globest.com. See more here.

This report by the Wharton School of the University of Pennsylvania says there is no single answer as to whether a company should own or lease its real estate. See below for the reports summary and conclusions.

One of the most important capital decisions made by corporations is whether they should own or lease their operating real estate (offices, industrial and warehouse facilities, and retail space). This decision is generally viewed by corporations as a trade-off between the pres- ent value of rental payments versus that of the operating costs of owning the real estate, net of expected capital appreciation and the depreciation tax benefits from ownership. The rule of thumb is that only if the present value of future rent is less than the present value of costs of self-ownership of the space (net of depreciation benefits, and expected property appreciation), should the firm lease rather than own. However, as this paper demonstrates, this analysis is fundamentally flawed, lead- ing companies to own far more corporate real estate than is economically justified. This is true in countries such as Germany, where corporate users own as much as 75 percent of their real estate, as well the United States, where roughly 40 percent is owned by corporate users.

The correct model for the own-versus-lease decision must compare the present value of profits the corporation expects if it leases versus the present value of expect- ed profits if it decides to own its real estate. The key insight provided by this corrected approach is that the own-versus-lease decision revolves around the com- parison of the lost profits associated with moving corporate capital from core operations to real estate, versus the profits achieved by real estate owners. That is, capital freed up from real estate ownership generates the company’s core business rate of return, while rents reflect the rate of return earned by landlords on their real estate capital. Since most companies have higher expected rates of return in their core business than are achievable through real estate ownership, this decision model indicates that the vast majority of corporate real estate should be leased. The intuition of this result is simply that by moving capital from low-yielding real estate to high-yielding core operations, companies increase profits.

The model [in this paper] demonstrates that there is no single answer as to whether a company should own or lease its real estate. Instead, it depends upon the nature of the firm, the nature of the real estate market, the type of the real estate, and taxes. But the model demonstrates that high-multiple firms with high core rates of return, particularly if they are looking for real estate that is readily available in a competitive real estate environment, should lease. The model also suggests that for idiosyncratic properties in less competitive property markets, companies with low rates of return in their core business will gain by owning their real estate, particularly if the rental market is very inefficient. Our model can be easily applied to every property to determine if the firm should own or lease the property. A critical insight is that shifting dollars from EBIT-DA to rent can enhance corporate value, as the capital is allocated to higher return core businesses, generating greater bang on the firm’s limited capital, by freeing capital from relatively low-yielding real estate to high-yielding corporate operations. This decision also allows corporate management to focus its energies on its core competencies, which generally both lowers risk and adds value.

Source

What are the advantages of buying real estate at auction?

Buying real estate at auction allows you to experience a quick purchase and closing, eliminates lengthy negotiations, and provides the assurance the price paid was market value. The buyer can determine the price that they pay without lengthy negotiations. Many buyers receive significant discounts while buying at auction.

Why are properties sold at auction?

Owners make the business decision to sell property by auction to take advantage of the comprehensive marketing and the quick and immediate time frame not provided by conventional brokerage. We look closely at each property to ensure that the seller is providing all necessary due diligence and attractive reserve prices.

Are your auction properties bank foreclosures? / Who are the sellers?

Some of our properties are foreclosures; however, our auction properties come from banks, lenders, and private individuals who know and understand the Value of Selling at Auction.

Where will the auction be held?

We hold all of our auctions on site or in a hotel ballroom setting. The auction on May 20 will be held at the Westchase Hilton on Westheimer.

How will the auction be conducted?

The auction will be called by live open bidding. As a bidder, all you need to do is hold up your bidder card that you receive when you register and call out your bid, or tell one of Clay & Company’s representatives what amount you want to bid.

What is the starting or minimum bid?

Our auctions are conducted with the open bidding system. A starting bid comes from qualified bidders who are attending the auction. There is no beginning or minimum bidding price. The price that a property will sell for will depend on whether an auction is Absolute or if it has a reserve. Please see specific property site packages to the reserve price information.

What is an Absolute Auction?

An absolute auction is an auction where the property is sold to the highest bidder regardless of price. An absolute auction has no minimum and no reserve.

What is a Reserve Price?

The reserve price is the minimum price that a seller is willing to accept for a property.

What is a Buyer’s Premium?

A buyer’s premium is a percentage of the high bid added on to the bid amount. Buyer premiums are used by many auction houses as a means of helping to cover the cost of the event. It is an amount added to the high bid and payable by the buyer to Clay & Company at the closing of the transaction. Clay & Company typically requires a 4% Buyer’s Premium; however, please check the Terms and Conditions for individual auctions.

As a purchaser of a tax delinquent property will I be responsible to repay the municipality the past due taxes? / Is there a lien on the property?

All of our properties are being sold with a clear title and no delinquent back taxes.

Is financing available?

We can arrange financing for most properties and some auction properties have seller financing available. Please see the terms for each individual property. We recommend that financing be arranged prior to the auction. Please talk to one of Clay & Company’s representatives and we will work to arrange financing options for you.

Can I see the Earnest Money Contract before the auction?

Yes, we will be on hand one hour prior to auction and will have all Earnest Money Contracts for potential buyers to review.

To whom do I talk to if I don’t understand the auction contract?

It is very important that you feel comfortable regarding the auction process. Please talk to one of our representatives to make sure all of your questions and concerns are answered before you bid at the auction.

Can I be represented by a Real Estate Broker at the auction?

Yes, we encourage buyer-broker participation; however, a real estate broker who represents the buyer must attend the auction and be registered as the buyer’s broker prior to the start of the auction.

I cannot attend the auction. Can I still put in a bid on something?

We are happy to help you if you are interested in an auction property but cannot attend. We can arrange phone-in bids where a Clay & Company representative will call you at the start of the bidding. We also accept signed written absentee bids where you tell us what items you would like to bid on and how high you will go.

What is required in order to bid at an auction?

Registration is necessary to be eligible to bid at a Clay & Company auction. Prospective bidders can register online or at the auction site beginning one hour prior to the auction. A certified or cashier’s check made payable to Clay & Company must be presented on auction day in order to complete the bidder registration process. Please see specific auction terms and conditions for amount.

If I am not the successful high bidder, will I recieve my deposit check back?

Yes

I’ve never been to an auction before. What do I do?

If you see a property that you are interested in please call the auction office and request a Property Information Package. In addition, your complete inspection of each property is recommended. Once you decide which property or properties you would like to bid on, registration is necessary to be eligible to bid. Prospective bidders can register online or at the auction site beginning one hour prior to the auction. A certified or cashier’s check made payable to Clay & Company must be presented on auction day in order to complete the bidder registration process. Please be aware if you are the successful high bidder you will be required to enter into an earnest money contract.

What happens once I have become the successful high bidder?

The successful high bidder on each property will be immediately escorted to the contract signing table where he or she will be required to sign an Earnest Money Contract verifying the amount bid and the property purchased. An earnest money deposit of 10% of the purchase price is due at this time. The certified or cashier’s check surrendered at registration will be attributed to this deposit. Each sale will close as specified in the Earnest Money Contract. This is generally on or before 30 days from the auction date.

Do I have to make any more deposits other than my initial deposit before closing?

Usually you must increase your initial deposit to a total of 10% of the purchase price upon execution of the contract, which takes place at the auction. You may pay this additional amount by personal, company, or cashier’s check.

How long do I have to get financing after the auction?

We suggest, if financing is required to complete a purchase, you arrange and pre-qualify with a lender prior to the auction date. If you fail to pay the balance due by the closing date, you will forfeit your earnest money.

Is my deposit refundable if I change my mind after the sale and decide not to buy the property?

No. If a buyer does not close for any reason on or before the closing date, the initial earnest money deposit will be forfeited.

When and where are closings held?

Closings generally occur within 30 days of an auction at the title company. Since the seller typically pays for title insurance, a company has been selected and will be provided to you in the when you sign the contract.

It’s that simple for you to own one of our auction properties! Have more questions? Contact us by phone or email or come early to the auction. We want you to feel comfortable and we are here to help!

Multi-Property Commercial Real Estate Auction
Thursday, May 20, 2010
Westchase Hilton
2:00 PM

15,000 SF Restaurant/Bar • 110,000 SF Office-Warehouse
10-Acres with Home • Retail/Restaurant Buildings • Commercial Land Tracts
Commercial Reserves and Pad Sites
For more complete auction information, click here.

A real estate auction is an innovative and effective method of selling real estate. It is an intense, accelerated real estate marketing process that involves the public sale of any property, distressed and non-distressed.

So how can auctions benefit you, as a seller? Why are they the best way to sell property? There are a number of reasons this method can be advantageous to you.

• Speedy Process, Quick Turnaround.
An auction is immediate. It happens during a set time and is completed during that time. Closing dates are a predetermined condition of the sale making the process is quick and efficient.

• Holding costs such as taxes, insurance and maintenance will be minimized through a more expedient sales process.It’s as simple as that. We work with you to schedule what works best for you. You can always include your property in our next multi-property auction to benefit from the combined monies and exposure, or we can hold a single property, on-site auction if it better fits you and your property.

• You Set the Time and Place of Your Sale.

• The Comprehensive Marketing of Your Property.
Part of conducting an auction is marketing it to the general public to get as many people there as possible. The auction process ensures an aggressive marketing program that increases interest and visibility. With our extensive mailing lists, full brochure, specialized websites, and widespread advertising we can guarantee that no one will get your property more exposure than we do.

• Buyers Come Prepared to Buy.
The conditions of an auction require potential buyers to perform their due-diligence prior to auction and to pre-qualify for financing.

• Competitive Bidding and Exciting Atmosphere.
Auctions motivate buyers to perform. People get caught up in the competitiveness of the bidding resulting in the fair market value of your property. There’s no more exciting atmosphere than an auction.

• Auctions Work Well in Both Good and Bad Economic Times.
Extensive marketing exposes the property to a large number of pre-qualified prospects. Statistics show, in a good or bad economy auctions remain a steady force with people still flocking to auctions looking for great acquisitions.

Clay & Company has been holding commercial real estate auctions since 1991. See our website for more information about participating as a buyer or seller. Our next auction is scheduled for May 20 in Houston.