Discard any visions you may have of rapid-fire auctions with fast-talking auctioneers pushing bidders to make split-second decisions. Last Friday's auction of 5,499 home lots from bankrupt TOUSA's Florida portfolio was a slow-motion affair.
If a typical auction is a sprint, the TOUSA asset auction Jan. 22 was definitively a marathon, said Mike Moser, east region president for Starwood Land Ventures, which eventually posted the winning bid for the land.
What Moser expected to be done in two hours took six and a half hours, from 10 a.m. to 4:30 p.m., as three bidders gathered into a South Florida's attorney's office and kept slowly and deliberately bidding up the price from the $61 million starting point to $81 million, $500,000 at a time.
Moser said Starwood would have waited longer and even bid higher for the portfolio of lots that has been graded an A-minus in quality.
"This was the highest-rated portfolio we have seen since the downturn," said Moser. "It was probably one of the most high-profile, sought after deals in recent history anyway."
It attracted some high-profile attention as well. In addition to Starwood Land, RERF Acquisition Corp., an alliance of hedge fund manager John Paulson and Greenpoint, and RyanDune JV, a partnership of Metro Development Group II and Dune Real Estate Partners, were also bidders.
Each of the three bidders was allowed to have two principals and one attorney inside the auction. In addition, there were 12 other people in the room, including representatives from TOUSA, its creditors committee, and various other officials, said Moser.
The bidding started with Starwood's court-approved stalking horse bid of $61 million, plus the approximately $2 million break-up fees and costs that were required to be added to the starting bid, and then climbed at the minimum of $500,000 increments.
Some industry watchers proclaimed the $81 million, roughly $14,730 a lot, not including the 36 model homes, high, and Moser agreed the purchase bears risk.
"It's definitely not without high risk," said Moser. "We're in the land business, and the land business is risky, even though most of it's finished lots."
However, the quality of the land in the package is high compared to other large portfolios of land being marketed in recent years.
"They were always C or below. This one was the first one [of that size] to be rated a B or an A," he said. "We were feeling very strongly about it."
Starwood isn't likely to resell the land quickly in large chunks, but rather in small pieces over time that builders can turn into homes quickly without putting out too much cash and/or upsetting shareholders.
"If we need to hold it longer to recognize the value out of it," that's OK, said Moser. "It will be a slow methodical dissolution. We are in a marathon rather than a sprint."
Still, Moser's phone already is ringing, with builders in need of finished lots calling with the hope of replenishing their dwindling supply of ready-to-go land in desirable locations.
"There's a very strong demand for most of the lots," said Moser. "I hope it's demand at the right price."
In the meantime, managing the huge new purchase is going to keep Starwood busy. As the land sat in bankruptcy for the past two years, the grass grew up, permits expired, and homeowners' associations languished.
"It's not like it's all neatly manicured," he said. And, with the purchase, Starwood takes charge of 22 homeowners' associations in the 50 communities. And then there's the community development district debt to take care of, the past-due fees payable to investors who financed the communities' infrastructure by buying municipally backed bonds floated by the developer.
"[CDD troubles are] part of land development in Florida," said Moser. "We are prepared for that, and we've negotiated with a lot of the bondholders. We began working on that a few months ago."
In the end, Starwood's investment and the other notable land bidders' interest in making the bulk land purchase, are indicative of a growing faith that the Florida market may have bottomed out and that its future will, eventually, be bright again.
"I think Florida is going to rebound with a vengeance," said Moser.