Distressed companies are adjusting their business plans in the wake of Covid-19 by downsizing their operations or, unlocking the value that their buildings hold. Adapting to current market conditions requires tapping into speedy recovery solutions and there are two aspects in this disrupted market that presents opportunities for business; the first being e-auctions, which have become the new norm and in turn, has introduced a fast-paced and growing new buyers’ market.
Norman Raad, CEO of Auctions and Sales of the Broll Property Group says that while there is nothing good about the pandemic, it has forced buyers and sellers to transact online.
“With COVID-19 regulations necessitating remote platforms, eCommerce has come to the fore like never before, bringing some relief to those businesses that were able to transact online. However, this is not true for retailers and businesses that were already experiencing financial shock from the downward pressure of an ailing economy prior to lockdown”.
Raad says that Broll saw listed REIT funds losing 50% of their market value in the eighteen months prior to the end of March. “The lockdown exacerbated the stress that businesses were already under. For many, this has resulted in fatal closure. For others, trade is not where it was, and may never be again.”
With no true economic growth anticipated for at least three to five years, distressed companies and impacted landlords are under pressure to sustain. “More liquidity is needed in the short-term as they evolve their services in this changing landscape, especially for those whose ability to trade equally has been the most seriously impacted.”
Commercial property owners need complete solutions, and fast. “Webcast auctions are seeing premium and strategic properties coming to market that were previously unaffordable. While auctions have always been considered the speediest way to unlock the value of a property, that value now carries some new realisms” says Raad.
Roger Long, Broll’s Director of Valuation and Advisory Services says that valuations are based on the principle of what a buyer is prepared to pay and the bottom line is that value is dependent on similar prices achieved in the local vicinity. “Under lockdown, where no sales have occurred, you’d expect values to go down. But until you see hard evidence, you can’t be sure how much that decline has been impacted”.
“Sellers in the current market have to consider this unstable decline. Value generally depends on rentals coming in, and loan impacts. This means you have to counter the high expectations of a seller based on an ever changing landscape.”
Valuation is a mechanism that informs the market. It is the starting point for businesses who can judge how much value can be unlocked to counter the distress being experienced.
“For those that remain apprehensive of online auction platforms, the reassurance is that e-auctions are no different to physical auctions. Properties can still be viewed physically if required, and bidding processes are as detailed, if not even more secure, as before,” says Raad.
The Broll Property Group believes that this is the future of property auctions.
“E-auctions have proven very successful and reach a broader audience. We have received more online registered buyers than was usual before lockdown. Adapting to current conditions in such a short time has proven to all stakeholders that there is still lots of value in a property, be that for distressed or healthy businesses” he concludes.