Commercial real estate auctions are nothing new. For decades, brokers have attended auctions to bid on hotels and other property types. What’s relatively new, however, is commercial online property auctioning. Between the need to acquire properties and the convenience of the Internet and technology, online hotel auctions have taken the industry by storm—and they aren’t going anywhere anytime soon.
There are many key players in this new phenomenon, including Bid4Assets, Hubzu, and Williams, Williams & McKissick Companies, but Auction.com is the industry leader. The platform has captured the attention of hotel developers across the world, leading to a high level of success for both Auction.com and its users. Customers who buy and sell on the site include institutional investors, large hotel companies, regional and individual owners, and crossover investors.
Since its 2007 launch, the company has sold more than $30 billion in residential and commercial real estate assets. The website started out by selling smaller properties—it wasn’t until 2010 that online hotel sales really started to take off.
“It was then that a lot of the institutional groups we had past relationships with said, ‘Listen, we’d like you to start selling our commercial assets,’” explains Anthony Falor, managing director of Auction.com. “That’s how the commercial platform started. We sold our first hotel in October 2010, which was shortly after we sold our first hotel note. Since then, we have sold over 400 hotels on the platform, with gross proceeds of a little over $1.6 billion.”
In 2014, the company closed 76 hotel sales that included Holiday Inns, Courtyards, Hampton Inns, Comfort Inns, Red Roof Inns, Best Westerns, and other national brands. Sellers using the site in 2014 included RLJ Lodging Trust, Westmont Hospitality, and Peachtree Hotel Group. In January, the company formed a new division focused specifically on the sale of hotel properties.
To put it simply, the boom in online real estate auctions is likely due to how convenient they are compared to traditional hotel property auctions, which still take place but are becoming less common. Websites that offer this service often have a platform similar to eBay, just with much larger numbers. Because online retail auctions have been around for years and nearly everyone has some experience with them, these platforms are familiar and welcoming, especially to unseasoned developers. When Auction.com lists a property, for example, the company explains the property type, describes some key features, and offers a starting bid. Once the property is listed, the auction officially opens and bidding occurs for a set period of time. Just like in an in-person auction, the hotel goes to the highest bidder.
“All the elements of a traditional process are in place,” Falor says. “You’re creating a marketing period of anywhere from 48 to 60 days, and you’re gathering all the information that the buyer would need to make a rational, intelligent decision. The only difference is that in our case, all the due diligence is done on the front end before anyone makes a bid.”
Each bidder on Auction.com must submit financial credentials from banks or their employers, which weeds out potential buyers who may not be qualified to obtain or run a hospitality property of a certain value. Because of this vetting process, Auction.com auctions have a 98 percent success rate after the bids are placed, according to Falor. While it can be time consuming to review bidders up front, certainty that the auction will go through saves buyers and the company a lot of money and time overall.
Coming out of the recent economic downturn, many developers have been investing in different types of properties due to their high availability. Consumers of large properties in particular have learned that they need to be open-minded when buying properties, which is another benefit inherent in online auctions. They give investors, brokers, and developers a wide range of properties to choose from right at their fingertips.
Another perk in using online hotel auctioning is that developers don’t feel limited to a specific geographical area. Not only have there been reported increases in developers buying properties outside of their immediate vicinity, there also has been a spike in international sales. Buyers all over the world are now able to obtain properties wherever they see an opportunity. In fact, on Auction.com, 51 percent of bidders are after an out-of-state property, and more than 100 nationalities are represented on the site.
“Can you imagine being in Taiwan and looking at opportunities in California, or being in Abu Dhabi and looking at opportunities in New York, and then winning?” Falor asks. “It quickly became apparent that one of the biggest benefits of our platform is the audience we reach. It’s not only local or regional; it’s national and international.” Falor also explains that most buyers not only have a comprehensive understanding of the property they’re pursuing but also already have plans for management after the hotel is obtained. They are professionals who want to broaden their horizons and capabilities with these properties. And when they don’t have a practiced background in hospitality, they are actively seeking to work with companies that will help them be successful after the hotel is won in an auction.