Tracking CRE Price Discovery Though Auction Activity
44% of CMBS property auctions with final bids were distressed sales facilitated by a special servicer.
Price discovery continues to be a hot CRE topic, as industry experts have been telling GlobeSt.com since last fall. In times of uncertainty, it is difficult to know what to charge or pay for a property, leading to fewer sales and increased question over price.
One place prices do come out is in auctions, something that CRED iQ recently wrote about, noting that nearly $600 million in outstanding CMBS debt were auctioned from January 2023 through mid-June 2023 across about 70 actions.
The amount of data is admittedly thin. Out of those 70 auctions in the first half of 2023, “only nine sales auctioned assets with CMBS debt totaling $40 million were closed as of the June 2023 reporting period” because sales can take months to close.
However, there were “definitive final bids” for 57 of the 70 individual properties, with 25 being distressed sales facilitated by a special servicer, or 44%.
“Of the 25 specially serviced assets, there were 16 REO properties with titles that transferred to respective CMBS trusts prior to auction events,” the firm wrote. “Special servicers are tasked with liquidating these properties, sometimes after a period of stabilization, for maximum proceeds on behalf of CMBS certificate holders.”
The REO properties had been held on average for 1.5 years, with the range running from seven months to just under five years. The longest auction process was for a big box outparcel at the Potomac Mills Mall in Woodbridge, VA. The special servicer took title on June 2018. The high bid, $98 per square foot, a 22% cut from the property’s most recent appraised value.
About 43% of the auctions came from 2017 securitizations, “many from a 138-property lodging portfolio that used the auction process to unencumber individual hotels from a single large-loan securitization.” For that reason, hotels were the most commonly auctioned property type. Retail properties were also a significant portion. Although there was geographical dispersion of properties, Houston and Chicago saw multiple CMBS property auctions.
The differences between final bid and most recent appraisal were greatest for lodging, 6% to the higher, followed by office at 1%. The biggest losses: multifamily at 23% with most of the properties having an outstanding debt of less than $2 million, followed by specially serviced (12%) and retail (8%). When properties traded at a discount, it was -33% on average.