Commercial real estate companies see rise in prices, and auction activity

Confidence among real estate professionals rises along with prices as fundamentals continue to improve.

As real estate prices improve, so too is confidence among commercial real estate brokers who are increasingly utilizing the real estate auction.

The CoStar Group reported gains in commercial real estate property prices, as indicated by the CoStar Commercial Repeat Sale Indices. It is a good piece of news after the first quarter of 2013 experienced what commercial real estate insiders called a "seasonal slowdown." 

With continued improvement in market fundamentals, the value-weighted U.S. Composite Index – accounting for larger sales – experienced 10.8 percent year-over-year growth in April. Likewise, the equal-weighted U.S. Composite Index – composed of smaller sales – increased by 6.3 percent from the same time last year. Both of the indices experienced monthly gains of 1.1 and 1.9 percent.

"The improvement indicates a virtuous cycle necessary for sustained recovery," Dr. Ruijue Peng, author of the CCRSI, told CoStar. "As the pricing recovery encourages lending and capital inflows, a more liquid and efficient market is expected to support further advances in pricing."

While the largest gains occurred in the warehouse and retail sectors, investment grade property values improved by 4.1 percent in April. Despite its robust recovery initially, growth in the multifamily sector has cooled. There was a 25 percent increase in repeat-sale transactions. Approximately 5.8 percent fewer commercial real estate properties were withdrawn from the market by sellers discouraged by pricing or market conditions. That figure is reinforced by a 5.1 percent decrease in the amount of time a property spent on the market.

More properties are selling by auction
Perhaps the lack of Class-A assets in the retail and industrial sectors, and the subsequent push into lower class assets has spurred the adoption of the real estate auction by many commercial real estate professionals, in particular, distressed property.

"There are certainly more investors who are buying and selling through auction today than even three years ago," Stephen Karbelk, co-chairman and founder of Ameribid, told the National Real Estate Investor. "It has just become much more widely accepted."

According to Real Capital Analytics, an estimated $158 billion worth of distressed commercial properties have yet to hit to find their way through the sales pipeline. As the distressed property inventory inevitably shrinks, the auction firms responsible for liquidating them are becoming increasingly competitive. Some firms are expanding geographically, while others are moving to diversify their market shares, according to NREI.

"There are some preconceived notions that auction is for distress only, and we fight that battle daily," said Eric Paulsen, president of the commercial division for Auction.com. "That is really going to be the success story as we evolve from a distressed market,"

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