Spotlight On: Evan Gladstone – NRC Realty & Capital Advisors, LLCJanuary 8th, 2013 by melissa
Spotlight on . . .Evan Gladstone
This month we’re putting our Spotlight on Evan Gladstone of NRC Realty & Capital Advisors, LLC. With a specialty in sealed bid sales in the commercial property sector, we recently spoke with Evan on the advantages of sealed bids over other types of auctions, portfolio vs. single asset offers, as well as the current economy’s effect on commercial real estate auctions.
PA: How long have you been with NRC, and what does your position entail as Executive Managing Director?
EG: I’m the company founder. We opened our doors in 1989. I oversee our sealed data auction business, and my partner Dennis Ruben oversees our mergers and acquisitions business. Denny is based in Scottsdale, Arizona. Our corporate office is here in Chicago.
PA: Your firm deals with various commercial and industrial properties. Is there a specific type that seems to do exceptionally well at auction?
EG: We have a sub-specialty in the convenience store and gas station industry, although our business is not limited to that. We’re a large player nationally in that venue. We also have a secondary business selling franchise restaurants. One of the things that has been a common theme in our company business is selling multiple properties in the same sale. Some of our larger sales have included the sale of 600 convenience stores for a company called Swifty Serve, and 520 convenience stores for a company called Clark Retail – those were both liquidating, Chapter 11 bankruptcies. We also sold 450 stores for BP nationally. The buyers were franchisees and were buying ampm franchises. Of course in all our sealed bid activity, we sell in a ‘buy one, some, or all’ format. To give you a better scale, the Swifty Serve and Clark sales each sold to over 200 individual buyers. In the BP business, probably closer to 450 stores sold to 425 buyers.
PA: While we’re talking about convenience stores and gas station options, who would you say is your biggest audience for this type of commercial real estate? Would it be large corporations, international investors, etc.?
EG: In the convenience store arena, the buyers are primarily small companies and individuals. They are new American buyers, from South Asia and the Middle East, etc. When we’re selling, we sometimes sell to gasoline distributors so companies that will buy ten and 20 sites for their company – our buyers are all users. There are no investors in this realm.
PA: Do you handle sealed bid auctions exclusively?
EG: Over our company history we’ve done many live auction events, but typically for these kinds of properties, being that they’re often widely scattered, we do sealed bid. For example, the Swifty Serve stores were located in 17 states and without any concentration anywhere. We find that the sealed bid approach is the most efficient to move all the properties on the same day. For live auctions for widely scattered properties, we would have had to do 30 live events – we saved on cost and time from having to do that. It’s also in the sealed bid realm that when we offer portfolios, we’re able to utilize some of the methods that live auctioneers use. Auctioneers call those pick-and-choose bidding or bid by choice. In our world, we call this bidding by preference. One bidder could bid on 100 stores and say they only wanted to buy one. That’s very hard to do in a live auction.
PA: Do you think sealed bids are more effective than other options?
EG: Well, for certain kinds of property. We just completed a sale of 61 cross-dock truck terminals for YRC Worldwide. These were not distressed properties, but they were excess industrial inventory – nothing being used anymore. These were located in 20 to 25 states. We sold every property to industrial users. The vast majority went to trucking companies because these are laid out with truck docks and so forth. Some went to warehousing companies and other industrial users. Another benefit in the sealed bid realm is when property has very high demand or the opposite end has very limited demand, often times we’ll have properties where there’s only one bidder. We’re able to sell that property to that one bidder through the process. In a live auction with one bidder, maybe you have an opening bid and that’s it. The other end of the spectrum is a huge amount of interest and ten or 15 bidders. In a sealed bid, the bidders send their signed purchasing contracts in with their cashier’s check and that’s the way to bid. You have 15 bids on the same contract form, all with cashier’s checks – so you’ve got a real opportunity to go back to the top several bidders, negotiate with each one, one on one, until you get to the highest price.
I’ll give you one other further benefit – with certain clients such as BP, when they’re entering into a 20-year franchise agreement, they might like the high price. They like the high price but they may not like the bidder that made the high price bid because they don’t think they’ll make a good franchisee. We have the ability in a sealed bid sale to select the bidder that meets the seller’s criteria, where in a live auction people show up and you really don’t know anything about the bidders. So there is lots of prequalification possible in sealed bid sales.
PA: When it comes to single asset versus portfolio, how often do you find the portfolio offer wins over the single asset?
EG: We do single assets as well, but our real sweet spot is in this multiple property-type situation. We’re currently working a 21-site portfolio for a bankruptcy trustee, which ranges from four 15,000-square-foot office buildings to single rented townhouses. They’re all part of the same bankruptcy spread in Colorado, California, Arizona, and Texas.
PA: How would you say the current economy has affected your business?
EG: I think the broader commercial real estate market – it’s a big parallel to the general economy. You’ve really got two economies that are going on right now. The class A properties, well-located properties – we’re seeing income properties trade at historically low cap rates. We had lunch with someone from Prudential who buys for them, and she told us she’s seeing sub five cap rates on class A properties. On the other end of the spectrum, you have a lot of remnant properties from the last recession and from outsourcing in manufacturing or overbuilding in retail. Those properties are really struggling. If they’re in-town properties with low tenancies, lower rent and so forth, those are tough. Coming back to the YRC sale, what generated our bids on those sites is letting the market price them, as any auction would do. The majority of those sites had been on the market for four to five years prior with the specialty trucking company broker. We came in, set minimum bids between 50 and 75 percent of the current last list. We now were able to find trucking users. There’s capital out there.
There are transactions that are happening, but at the market it’s very staggered in terms of the enthusiasm, and that’s really driven by property quality. Really high quality properties and multifamily properties have held up very well in this market. User properties, retail, retail pad sites, etc. have been very tough.
PA: Do you see a high rate of broker participation at your auctions and if so, does this make the auction more successful?
EG: We view the brokerage community as important – as much as reaching out to buyers directly. When we market, we offer competitive broker commissions and spend a good deal of our time prospecting within the local brokerage communities proximate to the property to find buyers. In our gas station and convenience store work, there are probably a lot fewer brokers that really understand that kind of business. So, we see maybe 15-20 percent of the properties sold via brokers. We’re in the process right now of selling 74 former gas stations without tanks, so they’re basically commercial pad sites with small buildings on them for Getty Realty. In that sale, what we’re looking for is a user to buy the site, and in this case, typically users might be a used car dealer who likes the fact that the tarmac is there. The curb cuts are there, the building is 2,000 square feet for a used car dealer or for somebody putting in a lube shop or tire shop or something like that. As this sale is unfolding, we’ll probably see 40 percent of the buyers come through a cooperating broker. Because again, that is something that a general commercial broker would be able to work on, easily understand, find a user for it, and so forth.
PA: What are your early predictions for the auction market for next year?
EG: I think in terms of next year and property values, if you have that A class property today and you want to sell it, you probably want to sell it because the low cap rates and the high demands for those types of assets will not continue. It’s an aberration. On the other side are the majority of the kinds of properties that go to auction. Whether the seller has an excess piece of real estate, they can’t use it as their business, it’s a closed industrial plant, it’s land and so forth. The expectation that in 2013 or 2015 you’re going to obtain a substantially higher price than today is probably not a great bet. We know now that the market has not really appreciated for those kinds of properties at all over the last couple of years. We’re not seeing any factors or any drivers in the marketplace that are going to change it.
Now, from NRC’s standpoint, our business in the convenience store world is probably unaffected simply because in the convenience store world, we’re selling operating businesses. It is sitting in a seller’s market, and it continues to be a seller’s market. There are more buyers out there that will want to get into this business. Even in the depths of the recession, the convenience store business did not see any decline in store sales. When we were in the recession, instead of shopping at Pathway, people would shop at the convenience store and just buy less, such as just milk and eggs and bread. Convenience store sales have held up through the recession – they did not decline at all. What did decline are interest rates, so mortgage rates are at a historic low. Credit worthy buyers can buy a property like that and they’re making more money because their debts are just less.
PA: Lastly, what would your three top tips be for buyers and your three top tips for sellers be?
EG: Let’s take buyers. This is the same whether it’s a live auction or sealed bid auction. The first tip is to do your homework – read through all the offering materials, consult experts where you need to in terms of legal, accounting and real estate. The second tip is to work with the auction company – if it’s us, our sales team talks to buyers. Some buyers don’t avail themselves to that – they think they know it all. Work with the auction company to figure out how to best buy the property that they want to buy. Third tip – if the buyer is requiring financing, make sure that the buyer spends time talking to lenders in advance of the bidding, and identify who’s going to provide the financing. Then they will be prepared in that aspect, and it does not become an impediment to bidding freely. So my top 3 tips for buyers would be to do your homework, work with the auction company, and line up your financing.
On the seller’s side, I think it depends on what the seller has to sell and what the seller’s motivation is. The sealed bid sale can provide for the seller that does not have a time crunch, and also if they need to sell in a certain amount of time. Sealed bid sales can provide a structured platform for the seller to be able to look at all the bids from all the bidders on that property or set of properties, at the same time on the same day. I’ve been in this business for over 35 years and I can tell you that many times I’ve had a seller list a property conventionally with a broker and within two weeks, the seller gets a great offer. The seller declines the offer and eight months later realizes that they should have taken that offer, which is now long gone. The structure of a sealed bid sale is the same for a live auction, but the sealed bid sale requires getting all the bids on the same day, on the same contract form with a deposit. The seller gets to look at all the bids on the same day, then decide and make decisions as to which bid or bids they want. From the seller that has a time consideration, certainly the sealed bid sale is a great way to sell on a certain date and can be done really quickly. If the seller can assemble the property and due diligence information and get it to us quickly, we can literally launch a sale in a week or two. Sometimes sellers take a month and then it takes longer to get the sale going. Then the final piece for the seller is in order to sell the real estate, if you’re selling a property on the southwest corner and the seller wants a million dollars yet the property on the northwest corner is listed for sale at 500K, it’s not going to work. The seller needs to be realistic about what the market value of the property is today. It may be that the seller paid a million dollars for the property in 2007, but if they want to sell it today, they’re going to sell it for what the market price is today. You’ve got holding costs, opportunity costs – if they are ready to sell that property, they should go ahead and do it now.
PA: Is there anything else that you’d like our readers to know about NRC?
EG: We work nationally. We are licensed brokers in California, Florida, New Jersey and Illinois. We have corresponding brokerage of record in 26 other states. Besides our convenience store and restaurant work, we handle everything from residential subdivisions to development land, to hotels, retail centers and industrial buildings. Our process is structured sale – keys that we bring to the table are well-suited for a whole wide variety of properties including special use properties, schools – which municipalities are looking at how to get out of closed schools and excess property that they have. We’re talking to a couple of municipalities right now about running sales for them. We’re also bankruptcy experts. My partner Denny Ruben is a bankruptcy lawyer, so within the bankruptcy context we give a tremendous amount of experience. We understand the bankruptcy code and how the creditor debtor process works, and we are able to bring a lot of value to the bankruptcy situation.
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