Country’s largest commercial auction set for Las Vegas, but local brokers concerned

Analysts say the demand for retail and commercial real estate is still down, despite improvements in tourism and gaming and a drop in the jobless rate.

The largest auction of commercial property and bank notes in the nation’s history set for mid-May in Las Vegas is attracting national attention, but local brokers remain skeptical that many transactions will be consummated.

Real estate auction company Auction.com is hyping the event May 17-19 online and from 7 a.m. until 3 p.m. May 19 at the Cashman Center as a chance for investors to acquire distressed commercial properties not only in Las Vegas but the rest of Nevada.

More than 50 commercial properties are on the market ranging from retail centers and apartment buildings to land, industrial buildings and office buildings.

Normally, real estate investors would be drooling as the prospect of obtaining distressed properties. Brokers have long talked about billions of dollars on the sidelines waiting to gobble up properties at bargain prices but have had few opportunities to do so even though values have fallen 40 to 60 percent or more since 2007.

The concern over the upcoming auction, however, is that only 20 percent of its properties are for sale. The remainder is notes held by lenders who would rather sell them than foreclose on the property owner themselves.

That means the buyer of the note would in essence become the lender and would have to foreclose on the owner to take possession of the property.

“There’s a lot of assets within each of the categories of multi-family, industrial, office and retail that people would like to own,” said Kevin Higgins, a senior vice president with Voit Real Estate Services. “But there’s a lot of concerns about buying notes. It sounds easy enough, buy not everyone is comfortable with that.”

Foreclosing on properties can be a lengthy process that takes several years to take possession, especially if someone files for bankruptcy protection, Higgins said.

The level of interest in acquiring the notes will be determined by the minimum price that lenders seek for them, Higgins said. It’s going to have to be heavily discounted because of the risk of acquiring the notes, he said.

“We’re doing a lot of work analyzing the properties and in a lot of cases they’re below the note value,” said Mike Mixer, managing partner of Colliers International Las Vegas who’s representing clients considering a purchase.

“There’s still a lot of unknown because we don’t know the reserve prices,” Mixer said. “We want to be cautious.”

Mixer said some investors may want as little as a 20 percent discount on the note from the appraised value of the property and some institutional investors will want 50 percent or more.

The concern is that the owners of the notes and properties up for auction will use it to find out the minimum price buyers are willing to pay and pull it from the sale and seek better offers later on.

That’s what happened in many residential auctions held in Las Vegas as the foreclosure crisis unfolded.

Auction.com Chief Executive Officer Jeff Frieden said the quality and condition of the properties will compel even the most sophisticated investors to take notice and he expects many will be willing to act.

Until recent months, banks have been slow to foreclose on Las Vegas properties and when they have, the ones that they released were ones that were less desirable to purchase. Any introduction of the type of properties that investors had hoped would hit the market would be welcome.

“It would be foolish not to pay attention to it, but whether buyers get involved, we’ll have to see what happens,” Higgins said. “There’s a lot of pent up money wanting to find a home.”

Auction.com spokesman Rick Weinberg said there are plenty of investors who prefer to buy notes rather than properties outright and he is counting on that to be the case.

Higgins said he’s not sure how deep of a buyer pool there is for notes, but said several potential buyers who’ve never purchased notes are considering it given the quality of the projects and lack of properties on the market.

Higgins said whenever there have been large-scale note sales in the past it has involved the Federal Deposit Insurance Corp. pooling several together to sell to one buyer rather than making them available on an individual basis.

“This is uncharted territory selling these types of assets in Las Vegas,” Higgins said. “That’s where the question mark comes in, if people are willing to make bids that are going to meet the reserve price. I’m not quite sure how it will pan out. It will be interesting to see the outcome.”

Most of the commercial properties that have sold in Las Vegas were smaller, single-tenant buildings, but only a handful have been larger properties of 100,000 square feet or more, Higgins said.

Richard Lee, a vice president with First American Title, said whatever happens it will show how close the commercial real estate is to hitting bottom. The more transactions that occur in the marketplace will set the baseline price that’s needed to chart the course to its recovery, he said.

“Most people don’t feel we’re at the bottom in commercial, but this could make a big difference,” Lee said.

Some of the assets listed for sale:

• $56 million non-performing note secured by 333,234 square-foot Sahara Pavilion North retail center.

• $50 million non-performing note secured by The Fountains at Flamingo gated apartment complex.

• $38 million non-performing note secured by the Montego Bay Nine apartment complex in Henderson.

For more information go to http://virtualonlineeditions.com/publication/?i=67894.

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