(To read more on the multifamily market, click here.)
DENVER-Locally based Affordable Residential Communities, one of the largest publicly traded owner and manager of manufactured housing communities in the US, is auctioning 71 communities in 15 states on Dec. 15. The auction, being held by the local office of Sheldon Good & Co., will be by far the largest income-producing auction ever held in the nation, says Jim MacDonnell, who heads the Denver office for Chicago-based Sheldon Good.
"There has never been an auction of a portfolio of income producing properties in the US of this size," MacDonnell tells GlobeSt.com. "If you look at offices, retail or apartments, nothing comes to close to this. And commercial real estate auctions dwarf residential ones in dollar value, so this would be the largest real estate auction of its kind."
The auction will take place at the Donald E. Stephens Convention Center at 5555 N. River Rd., Rosemont, IL. "We chose Chicago and not Denver, as the place for the auction because so many of the properties are close to Chicago," MacDonnell tells GlobeSt.com.
Thirty of the first properties auctioned will be sold absolute, meaning the top bid wins. But what also makes the auction unique, in addition to its size, is that the communities will be sold by cap rates, not by price. The lower the cap rate, the higher the price.
This is how it works: First, a prospective buyer determines the price they will pay. Then, check the price on a cap rate conversion table provided by Sheldon Good. For example, a property with a 20% cap that would sell for $750,000 would sell for $2.5 million with a 6% cap. Each round of bidding will begin at a high cap rate. Sheldon Good will lower the cap rate until only one bidder remains. In other words, as the cap rate decreases, the price increases.
The winning bidder of each round has the opportunity to select one property, any combination of multiple properties or all available properties. The winning cap rate determines the winning bid price and the total purchase price for each property. The process is repeated, with each round of beginning at a high cap rate, until there are no properties remaining.
MacDonnell says that he invented the cap-rate auction. Although it may sound complicated, he says it actually is fairer to the sellers and the prospective buyers, because it puts everyone on a level playing field.
Scott Jackson, vice chairman of ARC, calls the 71 communities "terrific properties," but says they are either too geographically diverse for ARC, or could be more valuable to a different owner. "We intend to focus on our core markets," Jackson says.
Initially, there were to be 79 communities auctioned, MacDonnell tells GlobeSt.com. But eight of them were sold to investors. Those were all high-quality sites best suited for redevelopment, he tells GlobeSt.com. The communities being auctioned are in Alabama, California, Colorado, Idaho, Illinois, Iowa, Kansas, Louisiana, New Mexico, North Carolina, Oklahoma, Pennsylvania, Tennessee and Texas.
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