The true advantage of an online property auction is that it significantly opens up the pool of interested parties, though this come at a price. “For a lot of properties, online platforms like Auction.com are a great way to go because they offer so much exposure,” says Steve Kirby, principal at Mumford Company, a hotel brokerage and advisory firm based in Atlanta. “You have the auction team selling on one side and then you have the broker selling on the other. This double teaming approach works well for sellers, though not if they don’t want to share their information publicly.” He says his firm is seeing more and more off-market transactions for clients looking to keep things private.
Though some might not prefer their public nature, there are still advantages to the online hotel auctioning process. “The system that online auctions use is pretty phenomenal,” says Mukesh Mowji, chief executive officer of Pracrea, a company that has developed fully automated, end-to-end transaction and business intelligence tools to service commercial real estate developers. “When you’re bidding on a property against someone else, you are experiencing the thrill of chasing a property in real time. There’s always that teaser in your mind saying, ‘You still have a chance.’ Especially if the minimum bid increment is only $20; it really plays on the developers’ emotions. It gets them to think, ‘Go ahead and bid on it, it’s just a little bit more.’”
In the case of Auction.com, the numbers speak for themselves. For example, in July, the company sold five properties for Orlando-based Alena Hospitality with HREC Investment Advisors, a hospitality brokerage and investment banking company. For the five sales (see accompanying images), an $87 million profit was made. More than 250 bids were made on the properties, with 65 registered bidders.
While the numbers are compelling, this new trend has required property management companies and other players in hotel development to adapt to a new way of selling hotels. For companies like Philadelphia-based GF Management, online real estate auctions have become a necessary part of doing business.
“It’s something we have to watch very closely,” says Jeffrey Kolessar, senior vice president of development for GF Management. “Historically, when looking to acquire hotels, the traditional hotel broker process with first and best final bids was one of the most foremost methods to buy a hotel. Now, we are constantly in communication with the online auction folks watching what is going to be included in the monthly auctions.”
Other companies, such as auction services provider CBRE, focus more on the client side of the buying equation. CBRE Auction Services and CBRE Hotels team together to market and sell real estate assets at auction. Without these companies, many of the online hotel listings would not be available or even visible on Auction.com.
“This teaming approach provides our clients with the best in class brokerage, consulting, and auction services in the same transaction and ensures that we maximize the value of the property on a date certain,” explains Douglas Johnson, managing director of auction services at CBRE. “Over the course of the last four years, most of our hotel auctions have been online auctions.”
CBRE works with hotel owners and developers to determine what they would like to do with the property, what their goals are, and how they are going to meet them. This is vital because otherwise unqualified consumers could attempt to make a huge purchase and not know what to do with the hotel after that transaction completes. CBRE’s services range from assisting with a conventional sale process or even refinancing the hotels that were bought in an auction. “We’ve established a niche in counseling clients who are buying via online auctions on the proper methodology to meet their goals,” Johnson says.
But before developers can ensure that they can manage and make newly acquired properties profitable, or even start bidding, they need to be able to find the types of properties they’re looking for online. This is why marketing for online auction sites is so important. For example, Auction.com works with large companies, such as Google, which made a $50 million investment in the real estate site last year, and The Wall Street Journal, its largest print advertiser, to increase buyer awareness. The company spent $30 million in marketing just this year.
As of now, Auction.com and other online hotel sales are growing. More properties are being sold each year, more brokers are working with the companies, and more potential buyers are becoming aware of this simple process. Just as other industries have converted to mostly Internet-based services and use technology for every conceivable business process, this is just the beginning for hospitality. In just a few years, online auctioning has brought millions of dollars to hotel development, and with all of the different components of the industry—like management companies and brokerage firms—coming together and adapting to this trend, there’s no doubt that this segment of hospitality will just keep growing.
“We have evolved our offerings to meet consumers’ needs,” Falor says. “That’s where I see a lot of growth ahead for online auctioning.”
