It’s only a matter of time before a €100m asset is traded online in Europe
Johnny Horgan, MD of BidX1 Europe, recently caught up with Chris Borland at React News. In a wide ranging interview, they discussed the prospective of Europe’s first €100m online transaction, the potential for global multi-market sales, and why PropTech is attracting talent from traditional real estate.
The measures introduced to curb the spread of coronavirus have also naturally curbed the sale of commercial real estate assets in the UK, Ireland and across Europe.
Market uncertainty has shaken pricing, investors are watching what’s happening in the occupational market and potential buyers have been unable to tour assets. Investors won’t sign off on deals without seeing the building in person, would they?
Online property platform, BidX1, surveyed its Irish buyer base and reported 56% of respondents would be willing to buy a property without physically viewing it. The survey also noted 70% of investors would do a deal in lockdown.
Auction platforms have continued to offer opportunities to investors through the pandemic, with Allsop drawing in close to £66m from commercial sales in May and June. BidX1 has €80m of commercial and residential property listed on its digital platform this month.
The concept is increasingly popular among buyers and sellers, however what happens next is the interesting part.
While ‘big-ticket’ sales have yet to materialise through online platforms in the UK and Europe, Pangu Plaza in Beijing sold for $734m via a digital auction. Will refreshed confidence in digital platforms now translate into bigger sales?
And what about debt, could this be a point where loans and NPLs could be traded regularly online?
Johnny Horgan, managing director of Bidx1 in Europe, certainly thinks so and his background in big deals and distressed sales leaves him well-placed to judge. Horgan was formerly head of CBRE’s capital markets team in Dublin and head of property at Irish Life Investment Managers prior to that.
Has there been an increase in demand for the platform since the outbreak of coronavirus?
Yes, in short. We’ve seen an increase in demand from existing clients as well as from vendors who haven’t previously used the platform. In the case of the former, many were seeking to list stock which would previously have been offered via other channels.
I think an efficient, transparent, end-to-end online process provides the kind of certainty that sellers, especially larger institutional vendors, are seeking. I also think the knowledge that it isn’t a process which has been rushed into existence in response to an external shock is important too. Our model has mitigated against risk for investors and vendors because the full transactional process can take place digitally, despite any restrictions on physical movement.
We saw steady sales throughout the lockdown periods in each market. Our Spanish office saw the fewest transactions – unsurprising considering the severity of the situation there – but those sales were some of the only transactions taking place throughout March and April, in an otherwise frozen market.
Many of our new clients are those for whom traditional methods would previously have been the default solution. It’s interesting that perceptions about the best route to market have changed for many sellers – almost overnight.
We’ve also seen increasing demand from estate agencies who want to leverage the benefits of the platform for their own clients. We already have a number of significant partnerships, notably with Foxtons in the UK and Pam Golding in South Africa, but the pandemic has been a watershed moment for many traditional agencies and we’re seeing an exponential increase in demand on this front, across all markets.
While there has been plenty of commentary on the industry’s ‘tech-awakening’, the reality is that the services being adopted are heavily weighted towards the early stages of the buying process – assisting investors with their initial evaluation of a property through 360° walk-throughs or live virtual tours. The full transactional piece is a different matter, and that’s where we really add value. This capability, when combined with access to a global investor network, is something that elevates our client offering.
Do you think larger online sales will become more common?
Without a doubt, both in terms of volume and average asset value. Even highly-regulated industries like banking and insurance have seen significant digital transformation – proof that consumers are increasingly comfortable doing all kinds of business online.
Clients want an advanced deal execution platform, flexible and robust enough to allow them to tailor the sale process for assets, with the transparency, data and reach that you can’t get by using traditional methods.
At BidX1, we’ve seen a considerable increase in the average value of commercial assets being traded on the platform in the last 18 months, which I believe is indicative of a growing confidence in online real estate transactions.
I think we’ll see flexibility becoming increasingly important, especially in the face of market uncertainty: digital platforms are more agile, with the option for bespoke sales tailored to a client’s specific needs.
In Ireland and the UK, we’re best known for large-scale sale days, but we describe our model as a digital trading platform rather than an auction platform for a reason. Ultimately, it’s a powerful deal execution tool, with the flexibility to tailor the route to sale for each asset.
Take timelines, for example. For some assets, 3-4 weeks’ marketing leading up to a pre-set date when bidding takes place, is ideal. It suits individual sellers who want a quick turnaround time. It suits institutional sellers like banks and private equity houses who have large volumes on their books and require efficient and structured disposal strategies. But a more flexible timeline works for other assets. We’re able to open bidding on the platform at any time so marketing periods can be tailored to optimise outcomes for clients and offer flexibility to buyers.
I do think larger online sales will become increasingly popular, driven by the clear benefits for vendors – like speed and certainty of execution – and buyers’ ability to access property assets i.e. invest capital in multiple jurisdictions with minimal execution risk.
Finally, just to throw the cat among the pigeons completely…it’s possible that global, multi-market sales are an option for the future, bringing hundreds of investment opportunities to the market in one tranche.
The platform is sophisticated enough to power something like that already. We put as much investment into our technology and software teams as we do our real estate teams.
What are the current issues with selling big ticket items through auction platforms?
Mindset. I say that because, from a technical point of view, there are no barriers to this. Consider the sale of Pangu Plaza in Beijing: 39 storeys, almost 140,000 sq. ft, sold for $734 million via a digital auction.
But traditional methods are the default option: you never get fired for hiring IBM, as they say!
There can be some wariness about new ways of doing things. What we’ve always found in our conversations around Joint Agency is that the response tends to be binary: some agents are excited and enthused about the prospect of harnessing the benefits of digitalisation, others respond with caution – and the assumption that what worked years ago will work in the future.
However, Covid-19 has altered perceptions about the best route to market. This was a ‘digital trial-run’ for many. Although enforced by circumstances, I believe it will result in a permanent change of mindset, especially for vendors.
Scale matters too. You need a platform to gain enough traction, and build enough momentum, to become a go-to option for sellers and investors. It’s a virtuous circle; the more investors that are active on a platform, the more assets that vendors will sell via that platform. We’ve reached critical mass with the BidX1 platform – and that has enabled us to scale rapidly.
Is there currently a gap in the necessary advisory experience for large sales on auction sites?
For traditional ballrooms in the UK and Ireland, you could certainly argue that this is the case because the average residential lot size is between €500k and €700k. The advisory element is less relevant here, and the focus is more on straight-forward execution.
But market-leaders in the PropTech field are attracting talent from across the real estate industry, who want to be at the forefront of what is rapidly becoming best-practice in terms of marketing, advisory and deal execution. I’m living proof of that, having been Head of Capital Markets at CBRE.
Complex deals will always require a high level of advisory input. The increased availability of comparable data, both from an occupational and investor perspective, allows investors to underwrite investments quickly and independently, which reduces the value of broker input. This trend, combined with the more efficient marketing that digital platforms allow, again ‘levels the playing field’ for transactions large and small.
When it comes to PropTech specifically, I do think there is a differentiator between software developers ‘providing solutions’ for the property industry and property professionals that have developed their own in-house software and data capabilities. Property professionals are gaining an edge – they have combined the knowledge and experience of property experts with bespoke technology tailored specifically to our industry.
Will we eventually see a 100m euro asset traded on a platform?
Absolutely. Sales of this value are already happening in the US and China so it’s only a matter of time before this milestone is reached in the European property market.
The key benefit of selling via auction over a traditional commercial process.
Transparency. Ultimately, traditional processes are back to front because offers are made before due diligence takes place. We provide all the information upfront, meaning that bidders are fully educated, and indeed fully qualified. That means transparency for buyers, and price security for sellers because bids are unconditional. Speed of execution is another key benefit.
If we look specifically at a digital platform, you’re getting end-to-end transparency; speed and efficiency in terms of deal execution; exposure to a global buyer pool coupled with advanced digital marketing; and of course, the data piece.
I’m incredibly passionate about the importance of granular, real-time, multi-layered data when it comes to advisory. Look at the availability of ‘comparables’ in the current market – it’s a misnomer because there isn’t anything truly comparable to this situation whereby we are witnessing the after-effects of a global pandemic with severe restrictions on physical movement and large-scale state-sponsored liquidity. That makes pricing exceptionally difficult.
We will have more than €80m listed on the platform this month, and I have never been more grateful for its capabilities in terms of providing the data necessary to advise clients on pricing, marketing and closing options.
We’ve already had a flood of agents calling us to discuss pricing because we’ve continued trading throughout the lockdowns. With the level of stock now on offer and bidding opening on various dates this month, there will be a lot of people using the BidX1 platform as a source of concrete market insight.
Do institutional buyers use the platform?
Yes, although the breakdown varies between markets. We tend to see family offices and private banks making purchases, along with large corporates, local governments, semi-state bodies and housing associations. These are strategic investors, so the platform is well suited to their needs.
Can you imagine debt or loan sales being traded via the platform?
Yes – and in the very near future. The platform has applications across several sectors and we’re actively exploring options for transacting loan sales. Our model is uniquely suited to such a task and the regulatory environment has become more favorable since the ECB made it clear that it endorses offering NPLs in smaller lots sizes.
BidX1 is already Europe’s largest digital property investment platform and we also have operations in Africa, with further expansion planned for the latter half of 2020 and early 2021. We’re currently in the early stages of considering a move into Asia, but it’s early days.
Auction.com is the largest auction platform in the US, and they have a strong product offering. North America is a homogenous market with a common language and over-arching federal laws, as well as relatively similar legislation governing property transactions at state level.
Compare this to Europe and Africa, which are far more fragmented real estate markets. The opportunity is immense, but so is the sophistication required to take advantage of it. We had to build a multi-lingual, multi-currency platform, capable of handling the complexities of differing regulatory & legal environments, all while allowing a global investor base to transact property from wherever they are in the world.
It has been an enormous undertaking to build a platform with those specifications, and a significant investment. You need proprietary technology because no third-party provider has the necessary expertise.
Ultimately, that means the fundamentals are there for BidX1, not just for rapid expansion into new real estate markets, but also for other applications.
Based on current market conditions, we are likely to see an increased volume of NPLs, which will in turn increase transaction volumes. That may further accelerate our growth in existing and new markets.
If you add the Joint Agency piece to that, with a growing network of partners who want to leverage the efficiency and reach of the platform for their own clients, it’s clear that there’s a huge growth opportunity on the horizon.
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