'Very, Very Seller-Friendly': Prime Miami Retail Properties Going To Auction
On Tuesday, a 7,762 SF building at 226-228 Lincoln Road, Miami Beach's famed shopping street, traded for $5.8M. It was sold at auction.
Karson & Co. founder and Managing Principal Arden Karson said that the seller, a private individual, had lost tenants during the coronavirus pandemic, didn't have debt service and the lender took title. She suggested an auction over a traditional sale as a way to create an exciting process, especially considering the desirability of the address. It ended up getting 15 bids and selling to a Los Angeles buyer for 10% more than the reserve price the seller had set.
The owner of the neighboring building at 230 Lincoln Road, a four-story retail building with a Ross Dress For Less on the second and third floors, watched and admired the process and decided to auction his building too. That will take place on Aug. 11. Karson said she also has a listing for yet another neighboring property, 298 Lincoln Road, which may go to auction.
Adam Sklaver, a first vice president with CBRE's Capital Markets Group who is based in South Florida and teamed up with Karson to facilitate the auctions, handles auctions all over the country. He said the Lincoln Road deals bring attention to the format, which, as its moment in the sun has shown, can be efficient and offer speed and certainty.
Sklaver and his partner Phil Kates have been doing auctions for seven years, selling everything from office parks to newspaper printing facilities. They hold auctions once a month, facilitating the sale of properties all over the country. Whereas a CBRE broker doing traditional sales might only do a few big sales per year, they facilitate about 100.
The major difference between auctions and traditional sales is that due diligence is upfront and documents like title reports, environmental reports, financials and easement agreements are posted online for review for 45 days prior to the auction.
“I would say in 80% of cases, it’s a straight private seller or institutionally owned property,” Sklaver said. “They like the auction process and don’t want to deal with negotiations. They just say, ‘Here’s our reserve price.’ In the other 20% of cases, a guy is in a jam and has got a loan maturing. We bring it to auction with the reserve balance the same as the loan balance so he can pay off his bank. Sometimes if the bidding gets below the loan balance, banks will accept a short sale.”
CBRE can market an auction property far and wide. Sklaver uses third-party platforms, usually RealInsight Marketplace or Ten-X, which is owned by CoStar Group, to execute the auction itself, which works like eBay, he said.
Auctions run for 48 hours, usually from noon Monday to noon Wednesday, but bidders usually only make moves during the last 30 minutes. Sellers set a reserve price that isn't visible to buyers.
“If a buyer wins, they sign [a] contract the day the auction ends," Sklaver said. "It’s nonnegotiable. They put down a 10% deposit the next day. We close 30 days later. It’s very, very seller-friendly. The buyer can’t retrade. They can’t negotiate a sentence of the contract.”
"It cuts through the noise," Karson said.
Only serious buyers participate, she said. Some auction sales allow for financing, but many are cash deals. Bidders have to make quick decisions about whether or not to outbid a competitor, Sklaver said. If a bid close to the reserve comes in, a seller can decide on the spot to lower the reserve price during the auction to ensure a sale and hopefully get the bidding going.
On Lincoln Road, where the rise of auctions is on display, rents had gotten out of hand.
"Some tenants in small spaces were paying $300 per SF for rent" circa 2018, Sklaver said.
Rents were already cooling when the coronavirus pandemic hit and triggered vacancies, but foot traffic is now picking up, and Ross is always wildly busy with cruise ship passengers or travelers who forgot one thing or another, he said.
Karson said the auction format isn't for every property, but "an iconic address like Lincoln Road gets a lot of clicks."