Although a swift auction cycle and speed of sale benefits many of the buyers and sellers we see in the room, not every asset is the same – with some requiring more time on the market. This speed is a driving force behind the growing number of our clients taking advantage of our private treaty and auction backstop hybrid as a route to market.
Speed of sale
More than 6,000 people attend our auctions every year, preferring the speed of the gavel over months of negotiating. Here, buyers are often deal driven privateers. They do not have banks, committees and board meetings to hold up the decision-making process. They also have the liquid means to move fast; only 20% of auction sales are debt financed. For vendors, the auction room is attractive because of the speed and unconditionality of sale.
These points, combined with the reach now offered by the web, have helped to drive a growth in the popularity of auctions. Sellers, that have considered using the auction room but have not made the leap.
This approach has been most successful for complex assets where buyers have needed the extra time a hybrid model allows. These assets are marketed up to two months before the auction on the basis that they will go into the catalogue and under the hammer if they are not sold first. During this extra time, buyers looking to purchase a more complex asset will carry out the due diligence needed. With an auction as a backstop, sellers still have the advantage of certainty of sale.
This was the case with The George Shopping Centre in Grantham. Let to 28 different tenants with various vacant units, buyers needed an extra month to inspect, understand the wide range of tenant demand and the complexities of the service charge account before committing to their bid. This was sold at our March 2017 auction at £2.7m.
Redevelopment and PDR
The extra time this model affords is also beneficial for assets with permitted development rights or with redevelopment potential.
For example, 28-40 The Broadway, Cheam, a retail parade with 3,880 sq ft of vacant office space above. A private treaty campaign allowed an entire two months of marketing, which afforded purchasers time to fully assess the potential of developing the upper parts. The property sold prior to auction in March 2017 at £3.15m, well above the guide price.
A similar story is true of St Peter’s House, St Albans, a modern 22,089 sq ft office building, well let at £388,844 pa. Here, the market needed the extra time to decide if this was an office investment or residential conversion opportunity. The guide of £5.75m caught the buyers’ attention and it sold at auction for £7.1m in July 2017 to a property company. This also allowed one of the under bidders from a fund more time to prepare to bid in the auction.
For most, a hybrid is synonymous with innovation and ingenuity. Whilst hybrid electric and petrol cars are what typically spring to mind, at Allsop we have been pioneering a hybrid model of sale, utilising the expertise of both our private treaty and auction teams.
When it is not clear who the end buyer will be, our extensive database of 120,000 subscribers ensures that we are targeting a wide audience. Using the hybrid model, we are also able to use market feedback to hone the sales approach and adapt the pricing if it goes to auction.
The last example is Bywater House, Edgbaston, a 39-bed student building let at £185,000 pa. The seller wanted the additional exposure and wide reach offered by the auction marketing process, whilst still benefiting from a longer sales cycle provided by private treaty. The property sold prior to auction after an extra three weeks on the market, at £2.5m in July 2017.
While the auction room remains the method of choice for sellers looking for speed and finality, the hybrid model is providing an increasingly attractive alternative. By utilising private treaty with an auction backstop, vendors can reap the rewards of both a longer spell on the market and a high certainty of sale, which, for suitable properties, provides a very satisfactory outcome.
Notes to editor
George joined Allsop in January 1997 and in July of the same year he offered his first lots from the rostrum.
George qualified in Bristol with Chesterton and moved to Cluttons London office in 1991. His fascination with auctions began at the Thame Christmas Poultry sale whilst at school and has persisted since. George is noted for his drive and enthusiasm both on and off the rostrum.
You can contact George at firstname.lastname@example.org or on +44 (0)20 7543 6706.