Bidding wars escalate

Real Estate Weekly, Feb 4, 1998

Over the last several months, the interest in real estate has escalated into what many are calling a feeding frenzy. Buyers who had been sitting on the sidelines began to strut with confidence, wielding pocketfuls of cash. Backers also sent friendly locals-with-knowledge out to the building bazaars to track down dormant Cinderellas.

Bidding wars and sealed bids have become commonplace, as have bids going over the asking prices. There are final rounds, and then final rounds after that, with prospective purchasers being asked to sign the enclosed contract and don't forget the check for the deposit.

"The way things are now there are not enough sellers, but there are a lot of buyers," said Ronen Koren of Manhattan Connection

That's providing an atmosphere for grumbling over not being able to find product. It's common they say, for brokers to offer deals to only selected prospects usually those that they have worked with before.

"Why should I split a commission?," asked one broker recently who asked not to be identified and not to have the property he was selling revealed in REW.

He only wanted to deal directly with buyers on this premium property, without cutting in other brokers. "Why should I have to take calls from a zillion brokers asking for the brochure? Then I have to fax them the brochure, and then they don't bring me any buyer I don't already know," he added.

If you think that his confidence hurt the sellers, think again. They got top dollar on the offering, with high profile players laying out their biggest and best offers to take home the complicated prize.

Even when the broker works with other brokers and buyers, there is no guarantee there won't be sore losers - or even a lawsuit.

A few months ago, the handling of an Upper East Side estate property with two components angered enough people to bring at least one complaint to the New York State Attorney- General's office by a major developer.

Now another local has begun a lawsuit over the other parcel, which was sold by a different broker to specifically avert complaints. This prospective investor claims he was told he had won, signed a contract and then a few days later was told he hadn't.

That lawsuit has been filed against the estate, a trust, the offering broker and brokerage firm, and the winning bidders.

"There were 300 bidders and then it came down to four or five," said one party familiar with the action.

It is very typical for the last few bidders to sign a contract and go through the motions of going through a closing, explained Richard Baxter, senior managing director of Insignia Capital Advisors.

"The bid process works very well for the seller, but can be a disappointing process for the buyers," Baxter said. "It's just the best method of sale, because when a seller hires a broker, it's to get the best price. And the process that inspires competition gets the best prices."

Brian Ezratty, a broker with Eastern Consolidate Properties, said they are currently handling a building in the Flatiron District that is ripe for conversion. It was put on the market with an asking price of $8. 1 million.

"At one point the lowest counter offer we made was $7.8 million, based on a $7.6 million offer. At this point the offers are up to $8.3 million, and over the asking price, " he said, somewhat in awe.

The next stage will be a sealed bid for the top handful of bidders, where the firm will send out a contract and then give the bidders a few days to send it back filled in with their best offer, signed, and with the check for a deposit.

"We're going to encourage them not to make it even numbers," said Ezratty, who hopes to avoid another elimination round.

Baxter said when Insignia Capital Advisors place something on the market, they always try to have the seller bear the burden of the expenses and items that used to be paid for by the buyer as part of the after contract due diligence.

"We provide a title report, an engineer's report and an environmental report," said Baxter, who explained that once the bidder becomes a finalist, they have access to all the leases and other information.

"It's a very difficult position to be in as a broker," he continued. "We have the same buyers repeatedly for property after property, and it's hard to keep everyone happy. But we feel we've become adept at it, and it continues to work for us and our sellers. "

They create a different data base for each offering, and while some would be offered to 10 to 15 prospective purchasers, others will be offered to 100.

It's no wonder that many potential buyers say good buildings are hard to buy at a decent price before a competitor grabs it for what you consider too high a price. This is leaving picky buyers behind, but they are also confident they are financially secure.

TrizecHahn's New York general manager, Doug Winshall, admits they dropped out of the bidding for Helmsley's 140 Broadway when the returns, based on the amount they would have had to bid, were less than they wanted. That has now been contracted to Larry A. Silverstein and partner Morgan Stardey, Dean Witter, Discover & Co. for $190 million, a record $158 a foot.