RTC to Auction 1,400 Properties in Texas Next Week
In what is being billed as the biggest real estate auction ever, Kennedy-Wilson Inc. will sell more than 1,400 properties all over Texas in 10 different auctions next week for the Resolution Trust Corp.
Kennedy-Wilson, considered one of the nation's premier real estate auction houses, has seen its business soar as the real estate market slumped. Banks and thrifts eager to whack away at foreclosed real estate, and developers itching to pare down inventory, are increasingly using auctions.
Glenfed Development Corp., Encino, had 40 homes in San Juan Capistrano, Calif., that just weren't moving in the glacial real estate markets this winter. So they hired Kennedy-Wilson, and one day in December all 40 homes were sold in one hour. Kennedy-Wilson wrapped up the paperwork in two hours.
Seller Is Satisfied
"We felt very much that it was a success," said Charles Johnson, president and chief operating officer of the development arm of Glenfed Inc., the holding company that also owns Glendale Federal Bank. "We had already tried several other marketing approaches." Glenfed used Kennedy-Wilson to sell nine buildings this summer.
The company even gets high marks from competitors. "Kennedy Wilson is a solid marketing company. They are aggressive and have a good geographic spread. They put on a good show on auction day," said William W. Lange, president and chief executive of Lange Financial Corp., a rival auction company in Irvine, Calif.
Kennedy-Wilson strives for a festive atmosphere at the auctions, usually held in a hotel ballroom or a tent. Munchies are sometimes served and live music often livens up slow periods.
Waiting for the Bidders
Don Kennedy, a former Kennedy-Wilson owner and still its primary auctioner, uses the traditional run-on, sing-song to garner bids. But unlike the practice at car, cattle, or tobacco auctions, he is quick to slow down if bidders seem to not understand.
Virtually every type of real estate can go under the gavel including homes, condominiums, raw land, hotels, casinos, mobile home parks and apartments. Generally only "retail" real estate such as homes, condos and land are sold at a live auction.
The "wholesale" merchandise usually is sold using a sealed bid process. Kennedy-Wilson currently is using a sealed bid to try to sell the Aladdin Hotel and Casino in Las Vegas.
Big Turnouts Sought
Kennedy-Wilson spends heavily to advertise and follows up on inquiries to 800 numbers listed in its ads. The advertising and active 800 program is designed to get a big turnout on auction day. Having more bidders usually translates into higher prices.
Prices garnered at auction are certainly never what the seller hoped to get in better days, but most sellers seem satisfied. "We did a little better than projected," said Glenfed's Mr. Johnson of his 40 homes.
A big advantage is to get the problem assets off the books quickly. A bank or thrift can unload properties that have languished for months, even years, in a process than can take a little over a month.
Kennedy-Wilson's services include appraisal, market analysis, and sometimes advice. President William R. Stevenson told one builder to redesign an entire project before building because two-bedroom condos sell better in Palm Springs than one bedroom units. Marketing and advertising is done in-house.
More than Just Auctions
Kennedy-Wilson executives bristle at the term auction house. "We are a real estate marketing company, the auction is just one technique," said William J. McMorrow, chairman and chief executive.
The client list boasts dozens of the largest financial institutions and developers, including Security Pacific Corp., Los Angeles; European American Bank, New York; and Kaufman & Broad, Los Angeles.
But despite the big names, when markets improve, Kennedy-Wilson's business will cool. Banks, thrifts, the RTC and Federal Deposit Insurance Corp. will not be hiring auctioneers as frequently because they will not own much real estate.
"Bankers only own real estate in bad markets," said Richard Byrne, vice president, Chase Manhattan Bank. Chase has signed up Kennedy-Wilson to sell a small condo project in New England.
Developers said that at the 5% to 10% of sales price auctioneers charge, they themselves will likely use more traditional -- and cheaper -- methods. "It is typically not the way builders like to do business," said Eric Elder, director of marketing at Kaufman & Broad. Mr. Marks has used Kennedy-Wilson in several auctions.
But Mr. Elder also predicts it will be a long time before the RTC and financial institutions run out of things to sell. And he said there are always regions where business is slow and auctions would be a good tool.
And of course, Kennedy-Wilson executives believe the auction has become more accepted as a selling device and will be used more frequently in normal real estate markets. It is polishing techniques for those times.
One such technique would have Kennedy-Wilson use a combination of auction and regular marketing techniques. It will take a project and hold a grand opening auction.
An Additional Tool
After the opening auction, it will run a typical marketing campaign for as long as a year and then close out any remaining homes or condos with a clean-up auction. "We will be another tool in the real estate tool belt," said Holly Burgin, senior vice president.
Ten years ago, Kennedy-Wilson was auctioning about $10 million of properties a year. By 1990, that hit $400 million and is expected to top $1 billion this year. This year's total could approach the total of all the years Kennedy-Wilson has been in business.
As Many as 600 Employees
The company has grown to 15 offices from Los Angeles to Boston to Boca Raton, Fla. It has 250 full time employees, adding temporaries during especially busy periods, when the ranks swell to as much as 600.
There are certainly some good prices in the upcoming Texas auction. There are no minimums and "this sale is a teriffic opportunity for individuals to buy a piece of Texas for a great price," said Mr. Stevenson. The suggested price on an 8,000-square-foot lot in Rockport is $250 and on 101 acres near Austin is $55,000.
PHOTO : RUNNING THE BIDDING: Auctioneer Don Kennedy will have his work cut out for him at the giant Texas sale next week.