“There are a lot of people just waiting to see how things play out… There’s all kinds of pain to come but there will be opportunities for people to get hold of assets and make them work,” says Nick Myers, partner in restructuring and recovery at accountant Smith & Williamson.
Distress has historically filtered through to the auction room as one route through which creditors look for an exit when there are property assets in play and this was the focus of the final podcast in our EG Future of Auctions series.
Ollie Childs, head of commercial auctions at online auction house BidX1, has recently handled the distressed sales of a retail park and two shopping centres and he expects to see more activity around retail stock in H1 next year as well as around buy-to-let properties and smaller development sites.
Childs says there is a strong market out there for those willing to buy value-add opportunities.
“Through a distressed sale these assets will fall into new hands and those new owners will be able to spend money to improve them, perhaps look at re-purposing, and create value,” he says.
Myers says he is currently dealing with around 75 distressed assets, adding that the number is going up week by week.
Peter Loveday, partner in restructuring and recovery at commercial property agent Sanderson Weatherall and a registered property receiver, says he has recently been dealing with more part-complete residential developments.
“I think there’s still a degree of forbearance by banks,” Loveday says. “I think there’s probably a lot of distress stored up. And I don’t think we are going to see that until perhaps Q2 to Q3 next year.
So where do auctions fit into the restructuring and recovery sector – are they seen as a last resort for an exit or as a route of choice?
Certainty of sale
The answer is contingent on the asset, the client and the exit strategy. A house which is likely to appeal to owner-occupiers might not suit the auction time frame, but an income-producing HMO would, says Loveday. The certainty of an auction sale is also “incredibly helpful” when a property has anomalies around title or problems with planning.
Myers is currently dealing with a couple of properties with cladding issues and is talking to Childs about auction as the preferred route because it offers certainty of sale.
If the holding costs are significant and the margin between the debt and the value is tight, then the case for auction can be very compelling.
“The certainty of sale which auction offers means you’re not haemorrhaging costs,” says Loveday.
Myers agrees that certainty of sale is a “massive advantage” of the auction route. “Once that hammer goes down, you’ve got 20 business days to complete. From our perspective, that certainty is key, especially if you do have an asset where margins are very tight.”
Transparency
For those in roles similar to Myers and Loveday, being able to demonstrate transparency and open competition is also crucial. “A lot of their instructions are taken on a personal liability basis,” Childs points out.
Indeed, as a licensed insolvency practitioner, Myers says he has a duty of care to maximise realisations from a given asset. “I have to demonstrate that – to myself, the client and to the borrower to some degree,” he says. “Transparency is key.”
Loveday agrees. “The advantage that you have with something like auctions is that you are hanging your dirty washing out to dry for everyone to see. So everyone can see that it is a very transparent process and therefore you are, to a large extent, protected from criticism. If the borrower comes back or any creditor comes out of the wash and says you sold it at undervalue, you have demonstrated value by going through the room.”
For BidX1, the “auction room” has always been virtual, built on its proprietary technology. But are lenders and their advisers, and the potential buyers they hope to reach, comfortable with the online approach?
Myers and Loveday believe online auctions have fully demonstrated their worth during the pandemic. And as the only mechanism for auction, the pandemic has accelerated acceptance of online delivery.
“The property industry has always been conservative with a small C. Pre-Covid, I wasn’t necessarily reluctant to put something in online auction, but I was mindful that there could be a degree of criticism because it was untested,” Loveday explains. “That’s completely switched on its head now.”
Myers says in-room sales “haven’t died a death” but the accelerated switch to online is a “final nail in the coffin” for in-room sales.
“You get a far bigger reach for online. You get more people attracted to online. And I think some people find it easier and less threatening being online, rather than being in a room full of people.”
As Childs points out, the inclusive nature of an online auction with a global marketing campaign means that no one can turn around after the event and say “I wasn’t given a fair opportunity to bid”.
What’s more, bidders don’t have to spend all day in London in order to bid on a single lot.
“They can just jump on for 10 or 15 minutes, bid and then get on with their lives,” adds Childs.
Flexibility
Recent sales on the BidX1 platform have included the Westway Retail Park in Cumbernauld, near Glasgow, where the sale was triggered by the lender; two North West shopping centres offered on the instruction of joint administrators; and HMOs in north and east London.
“The pent-up demand in the market is very apparent,” says Childs. “Last year was, until the General Election, a little bit more difficult. And then we saw things accelerate in January. And then, of course, the market became very difficult overnight in March. But the online space has accelerated. Our business has become much more relevant and we are now acting for an awful lot more clients across many sectors – banking, asset management, local and central government and housing associations.”
The flexibility of online auctions also means that single-asset sales can be held at short notice on any chosen day – vendors don’t have to wait for the next in-room sale. In the case of the Cumbernauld retail park, the level of buyer interest during the proposed six-week marketing phase was such that the decision was taken to sell prior – for significantly more than the £6.5m guide price. “From the start of marketing to the point of completion was actually four weeks. That was an accelerated timescale driven by demand,” Childs explains. That flexible timescale can further help to address the issue of client holding costs.
Sales of larger assets such as Westway Retail Park through an online auction platform add important weight to the argument that chunkier price tags do not preclude using the auction route, which has traditionally been seen as the preserve of sub-£1m assets. Twelve months ago, a £6.5m sale by auction would have been quite unusual but BidX1 is currently reporting on other similar-sized assets.
The landscape appears to be changing.
To send feedback, e-mail julia.cahill@egi.co.uk or tweet @EGJuliaC or @estatesgazette
