The case for greater transparency

Transparency is not something most agents are used to or totally welcome but in the world of auctions it is a given. Seven times a year we launch a catalogue of say 150 lots, declaring our view on the price we expect the market to pay on around £100m worth of assets.

Of course, we are only mostly right in our view, but three weeks later the results of the sale are published regardless, with around 90% of assets having sold at or above our recommended price. The market then has an accurate take on pricing and liquidity - a welcome data point whatever the prevailing economic weather conditions, which is an essential guide to many an investment manager, like OLIM Property; asset manager, like Quadrant Estates as well as lender, fund or private investor.

OLIM Property has been part of the auction market for over 30 years and is now occasionally liquidating single assets as they fall out of the clear requirements of its long-dated income funds. Over the years, OLIM has traded out several portfolios of well-let stock that its clients have bought wholesale and sold on retail, typically very well to private investors all over the country.

Quadrant Estates is now one of the most experienced vendors in the auction market. On behalf of a private equity fund, Quadrant has sold 220 Boots premises on re-geared leases across the UK including 30 high-value lots in London. The initial bidding process for the portfolio in 2018 was guided by auction sales data, providing Quadrant’s client with reassurance with regard to the pricing, which was over £300m.

Incidentally, of the Boots sales, there have been five in London that have been sold at better than 3.5% net. Whatever the asset, this pricing is very hard to achieve without the open competition and transparency of buyers bidding instantly against each other unconditionally at auction.

Our final companion is Vijay Parikh of Harold Benjamin Solicitors. Vijay and I have grown up in and around auctions, sharing many clients who have built up and traded their own portfolios. One in particular now owns most of Leicester Square and is one of London’s largest private developers.

What part does the transparency of the auction market play in all this?

I have mentioned the importance of sales pricing and property data, but investors also need to get started, and that can be the hardest part of the process.

Whilst a “buy-to-let” investor can walk into a high-street estate agent or surf one of the many platforms online and buy a house or flat quickly “off-the-shelf”, investing in commercial property and even finding out what commercial assets are available is harder.

Small asset sales are often conducted by a London or nationwide agent, and typically sold as a portfolio because that agent does not have access to the local buyers who will pay the best prices.

The auction market has evolved hugely and harnessed technology to overcome the barrier to entry for investors who welcome it’s transparency. Allsop alone has a database of over 50,000 investors, who know that provided they are set up to bid, they have a real chance to buy at auction with the full knowledge of what the next buyer is bidding.

Placing a bid takes a couple of seconds, and if they are the last bidder on that property on the day of the auction, the asset is theirs. No first round and second round bidding process, just one five-minute period when it is up to them how high to go.

We’ve been successful at identifying and building relationships with investors interested in broken up portfolios across the country. Some of our recent sales include Boots, with 220 sales (£150m) to date, Medivet, with 49 (£30m), and William Hill, with 55 (£9.6m) among an average 750 assets each year.

So why buy at Auction?

As an auctioneer, one of the joys of the job is to talk to investors, new and more experienced, and there are two main reasons why they keep coming back to our auctions.

Firstly, they have a regular list of assets to consider with a full pack of information ready and waiting every six weeks or so. Secondly, if they are the last bidder on the day, the property is theirs, and there will be no further discussion.

Whilst there may be no such thing as a perfect market, the transparency provided in today’s auction market gets very close. The results we’ve been achieving for our clients speak for themselves, and the potential to apply this principle to bigger assets is something we work on every day.

This blog was first published on 17th March by EG. You can see the full article here

Related Content

George Walker joined a panel of experts from across the real estate sector in an EG Property Podcast on 28th February, which was moderated by EG editor Sam McClary.

In the episode they discuss why some of the transparency and simplicity of the auctions method hasn't been adopted in the private treaty world. How the auctions market continues to push forward regardless of economic conditions and why, while not totally immune to the chill winds of recession, the ballroom (virtual or real) continues to be busy.

You can listen to the EG podcast here, (you will need to log into EG to be able to access the podcast)

The podcast presented here are for general guidance and represents opinions of our teams based on the property market at the time of recording. All details are correct at time of recording.