Tough times stoke interest in auction houses

PORTSMOUTH

Steve Fox offered a final pitch before the bidding began.

"We're auctioning this outstanding, income-producing property, which is a nice thing to have these days," Fox, regional president of the Tranzon Fox real estate auction firm, told two dozen people last week. "We have a highly motivated seller who wants to have a validated contract today."

They stood in a store in Triangle Shopping Center - the property for sale, at Victory Boulevard and George Washington Highway. The online listing offered 82,382 square feet of mixed news: The anchor, once a Food Lion, was vacant. All of its other stores, though, were occupied.

In this market, the buyer could get some deal. But would the owner truly sell at any price?

Fox and other real-estate auction houses have become increasingly popular go-betweens these days. Tranzon Fox's Web site Tuesday identified 125 auctions and sales listings in 23 states. Before this year, he said, the total usually ranged from 75 to 100.

Owners are looking for help divesting of properties that, in some cases, have sat unsold for months. "If we don't have it sold in six weeks," Fox said, "something is wrong. Our projects last six weeks, start to finish."

Buyers are "pulling their money out of stocks and into real estate," said Fox, whose company is based in Virginia Beach.

"Real estate is a tangible asset. It's going to be there, and it will have substantial value in five or 10 years."

The trends aren't all upbeat. "What we're finding," Fox said, "is that purchasers need more time to close and they need more flexibility on the terms in the purchase contract, based on difficulties in finding credit."

Declining values also mean less money in commissions, which, for Fox, range from 2 to 10 percent per auction.

At the shopping center's Lucky Dawg Internet gambling store, the site of the auction, Fox made way for the auctioneer, Tim Jennings of Berryville.

After encouraging bidders to stop him if they had questions, Jennings began the auctioneer's chant, spewing syllables rat-a-tat-tat.

"Three. Three million. Give me three million?"

Then "two and a half." Down to "two-point-two." Still no takers.

Ninety percent of the properties auctioned by Tranzon Fox get sold, Fox said.

The business is about evenly split between commercial and residential real estate, Fox said. Both sides have experienced increased auction activity. Fox declined to discuss profits, but he said the firm sold 1,700 properties in auctions last year.

The percentage of properties entangled with bankruptcy or foreclosure, he said, has gone up significantly. They accounted for 20 percent of the total a couple of years ago. That proportion rose to at least 40 percent for the first half of 2008, Fox said, and might hit 60 percent for the second half.

Paul Tibbitt, a Norfolk investor, said he was selling Triangle Shopping Center to "change investments." It was the first time he had engaged an auction house.

"It's a tough market to sell in," Tibbitt said. "I just thought utilizing a company such as Tranzon, with Steve Fox, would be a potential benefit."

Barry Cole, president and owner of A.B. Cole & Associates, a real estate auction firm in Suffolk, said he also is experiencing an increase in business, including from first-time auctiongoers.

"They still see us getting money," Cole said. "They're not getting it through open houses or private sales."

The results, though, are not uniformly positive in the auction world. Of 423 members of the National Auctioneers Association surveyed earlier this month, 48 percent reported fewer people than usual attending auctions, said Chris Longly, a spokesman for the group, based in Kansas. Thirty-three percent reported no change, and 18 percent said crowds were increasing.

"Some are having the best year in their careers," he said, "and some are, unfortunately, closing their doors."

Jennings went down to $2 million before getting a bid. Then he went up the price ladder again.

"Two-three fifty. Can I get two-three fifty?" he asked.

Most of the 10 registered bidders stayed out of it. But at least three kept the auction going to $3 million, some by raising a bid card, others with a slight nod or an even less discernible gesture.

And then nothing.

A call for "three hundred fifty thousand" was met with silence. "This is your last chance," Jennings pleaded.

"We've got to sell it," Fox said, searching the faces of the bidders. No response.

Less than 15 minutes after it started, the auction was over. Triangle Shopping Center was sold for $3 million.

Tibbitt, the owner, said he was happy with the outcome. So was Brandon Choe, who, as a broker with Electra Brokers LLC in Richmond, represented the buyer.

"We got a good deal," said Choe, who identified the buyer only as a Richmond investor.

For Choe's client, the total purchase price was $3.15 million, including a 5 percent "buyer's premium" to the seller.

Fox said he was satisfied, too. "The results exceeded our expectations," he said. "The indications we were getting was that the price was going to be in the mid-2 millions."

Another registered bidder, Ashby Hackney, the principal of River City Capital LLC in Richmond, congratulated Fox on his way out.

"This is a new way to sell a big project," Hackney told Fox. "You over-exceeded."

Philip Walzer, (757) 222-3864, phil.walzer@pilotonline.com