A 640,000-square-foot office campus in Pasadena hit the auction block last month with an opening bid of $114 million — but not one bidder raised a hand. Not even for less than half its previous sale price.
Such no-frills public auctions of defaulted properties, with no bids by potential buyers, are on the rise on courthouse steps and public buildings from coast to coast, according to Bisnow.
With an estimated 44 percent of office properties nationwide underwater on their loans, many will end up on the auction block. However, they may not sell to new owners.
Instead, they will mostly revert to lenders like Heitman, based in Chicago, which took control of the Pasarroyo complex in Pasadena after Los Angeles-based Coretrust Capital Partners defaulted on a $271 million loan.
Non-judicial foreclosures, like the one that occurred in the Pomona auction of the four-building Pasarroyo, offer lenders a quicker and less expensive way to sell properties reclaimed from defaulted debts.
A lack of auction bids often stems from high prices. Even in the face of distress, opening bids sometimes match or exceed the outstanding debt, discouraging potential buyers.
And should they want the property, auction buyers must present full payment in the form of a cashier’s check.
Selina Perelskin, CEO of Beacon Default Management, said that in her 15 years of running auctions, a successful full-bid buy with a check occurred only once. “No one’s going to come with a $200 million check,” Perelskin told Bisnow.
Instead, she said buyers are more likely to negotiate a traditional deal with a lender after the auction, and try to cut a traditional deal with financing.
Such auctions still serve firms trying to get a distressed property back on even footing.
If there are no interested buyers and the lender wants to take the property back, the auction is a critical part of taking the title back cleanly, Katherine Bissett, a partner with the law firm Cox Castle & Nicholson, told Bisnow.
By going through the auction, the lender can wipe the slate clean of junior liens and other issues that have cropped up on the title since it issued the deed of trust, such as mechanic’s liens.
The foreclosure sale makes that slate-cleaning possible, Bissett said. “That’s really the benefit of the foreclosure.”
— Dana Bartholomew
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