Upcoming FDIC auctions are considered to be one of the greatest commercial real estate opportunities since the saving and loans crisis of the late 1980s. The Resolution Trust Corporation was created as a result of that crisis and closed or otherwise resolved 747 thrifts with total assets in excess of $394 billion between 1989 and mid-1995. Savvy investors were able to pick up deals for literally pennies on the dollar and were able to sell those properties in the late 1990s and early 2000s for substantial profits. For those investors who missed out on the prior opportunity to pick up distressed commercial assets from the 80s savings and loans crisis the planets have basically lined up again as part two of this thriller is coming to a theater near you. The current asset liquidations will be held by the Federal Deposit Insurance Corp. or FDIC and will be responsible for selling over 1.8 trillion dollars of real estate assets an amount five times greater in size than the savings and loan liquidation 20 years earlier. FDIC auctions offer different types of assets from REO, commercial property, loan, furniture and equipment. These auctions are made available through sealed bids or in an English outcry format. In addition loan portfolios are categorizes into smaller asset pools based on location, collateral, valuation, size and asset type. Bidder information packages called PIP’s (property information packages) are available upon request and will provide all the pertinent information about due diligence, auction procedures, minimum requirements and eligibility disclosure documents.
- Reserve Prices at Auction. Auction reserves on loan pools or individual properties are based on an appraisal model predetermined by the FDIC’s valuation of the underlying collateral. An initial deposit of 5% based on appraised value is required in advance of bidding and the winning bidder must be prepared to post an additional deposit whereby both amounts total up to 10% of the winning bid amount.
- Auction Times and Availability. Bidding usually starts three or four weeks after the official sales announcement is made and when bidding information packages are first made available to the public. It is important to understand that basically there is no feasibility period and closing times conclude very quickly within a matter of 20 business days or less. All investigation and asset due diligence should take place during the 3 to 4 week period after the initial sales announcement has been made public. Transactions are usually all cash deals and you should have equity or credit facilities in place to close on post auction assets. There have been some accounts where seller financing and expanded purchasing options have been available but these are rare and not part of the normal closing process.
- For More Auction Information. Finding information about the FDIC auction process is very easy, most of the information you need can be found on the FDIC’s website (www.fdic.gov) or on one of the websites from its authorized advisors. Under the link “Asset Sales” you will find a searchable database of all real estate, loans and personal property that is currently for sale. Detailed information is made available on each property with full contact name, address and phone number of the agent assigned from an FDIC office or an associated real estate broker. Additionally the FDIC website provides valuable information regarding closed real estate sales and loan deals that can be used to establish benchmarks for a successful bidding strategy.
In the news words like trillion dollar deficit or $500 billion dollar stimulus package are thrown around like it’s a relatively mundane number that doesn’t really attract much attention. But when was last time anyone took the time to highlight how much a trillion dollars actually is? Or 1.8 trillion to be exact. In short; a trillion dollars is a million million, its 1,000 billion its one followed by 12 zeros (1,000,000,000,000). If dollar bills were laid end to end a chain could be made that stretches from the earth to the moon and back again over 200 times. The current federal budget proposal for 2010 is approaching $10 trillion and growing the total debt obligation of the United States now exceeds $46 trillion dollars. So next time you hear someone casually toss around the words “trillion dollars” that’s what they’re talking about.
In conclusion to say the FDIC’s 1.8 trillion dollar asset liquidation is a huge deal would be an understatement. This is singularly the largest real estate and asset based liquidation in the history of mankind period. Individual investors and companies alike can purchase assets as large as office buildings or as small as a single piece of office furniture. So there’s definitely something in it for everyone. It is times like these that give investors willing to take risk the greatest opportunity to reap bountiful rewards. These are times where the greatest transfer of wealth is most evident, where entire asset classes are shifted and were investors large and small can increase their station. Happy hunting!