Just as the home building indus-try is in transition, so, too, is the nation’s largest real estate auction house that benefited mightily from housing’s downturn but is already thinking about its next moves once the industry recovers.
When Irvine, Calif.–based Real Estate Disposition Corp. (REDC) agreed to acquire Commerce Title and its retail branches offering title insurance from The Pulte Group in December, it positioned that purchase as being complementary to its auction business. “Our goal is to close all of our auctions in an expedient way,” explains Robert Friedman, REDC’s chairman. Having Commerce in its arsenal to move these auctions through “will certainly help that.”
Commerce fleshes out REDC’s portfolio of business units that already included a brokerage (Red Crown Realty), and divisions for asset management and valuations. Friedman says his company wants to expand Commerce’s market reach, possibly by offering its services to other companies. REDC is also considering branching out into the mortgage business, but not until 2011. “We need some cyclical businesses to go along with our non-cyclical ones,” says Friedman.
REDC certainly has the wherewithal to venture into new terrain, abetted by Connecticut-based private equity firm Stone Point Capital, which in late 2008 paid an undisclosed amount to acquire a 50 percent stake in the auctioneer. The main questions in front of REDC now are how long demand for distressed homes will remain viable, and how soon REDC will need to find new revenue streams to supplement its auction activities.
Last year, that market softened a bit for REDC, which saw the auctions it conducted decline to 232 from 300 in 2008. The number of homes it auctioned fell by about 13 percent to 28,551 units, and the dollar amount of assets sold, at “just north of $2 billion,” says Friedman, was considerably less than the $3.4 billion sold the year before. Government-imposed foreclosure moratoriums impacted the availability of products to auction and their prices last year.
REDC has held few land auctions lately. “Land is out of favor, and there’s no good financing, even for land at the cusp of development,” observes Friedman. REDC continues to auction property for builders, but many buyers and sellers “are still sitting on the sidelines. Well-built property is not hard to sell, it’s just the price that’s the problem.” Still, with $2 billion in option ARM resets on the horizon in the first quarter of 2010, and the impending cascade of foreclosures those resets are likely to disgorge, Friedman expects REDC’s auction business “to be busy for another year, year and a half.” REDC projects it will have roughly 30,000 homes to auction in 2010, and total purchases will reach around $2.5 billion. Friedman predicts a substantial number of those transactions would occur online, where half of REDC’s properties were sold last year. “Our goal is to get our auctions to the public” through online or ballroom sales events supported by aggressive 30-day marketing campaigns.
At some point, though, auction demand should subside. REDC, which began its operations in 1990, saw the same thing happen in the mid-1990s, when the economy improved and it shifted gears into commercial real estate investment and land development. It might do that again. “There will always be a need for auctions, and our online platform is very efficient,” says Friedman. “But if things turn around, we’ll take a breather and do something else with land, which we love.”