I’m just getting back from the national Tranzon meeting and I think the one thing we all agree on is that all signs point towards a strong 2008 for the auction business.

With continued skittishness on the part of the lending community and general uncertainty throughout the real estate industry sellers are going to be looking for a sure thing rather than the usual contingency laden offers. Sellers are tired of long drawn out negotiations that consummate in even longer escrows with uncertain outcomes. Commercial investment property is particularly well suited to the auction process and here are 5 reasons why 2008 will be The Year of the Auction in commercial real estate.

1) Commercial investment property buyers usually have well defined criteria. This fact allows for an accelerated evaluation. A well documented investment property can be evaluated very quickly by an experienced investor and that is exactly who’s walking around with the ability to buy today.

2) In today’s market, aggressive commercial real estate buyers are prepared with cash. There is a lot of money that’s been sidelined in anticipation of exactly the situation we’re in today. As someone who has recently had almost $4Million dollars in investment property fall out of contract (not auction deals) and not close due to lack of adequate financing I can tell you that this is a major issue for sellers. It is not enough to have a well qualified buyer and a meeting of the minds today. Banks are not flexible in their debt coverage ratios and they are poring over income and expense statements with a fine tooth comb. I’ve seen very qualified investors with reasonable and customary credit scores and capital fall short of closing in the 11th hour. The flexibility that existed in the boom has completely evaporated. CASH is the order of the day and an auction contract with hard money and no mortgage contingency is the only way to guarantee (as much as that’s possible) that the transaction will close.

3) The continued appetite for commercial investment property virtually guarantees that a seller will achieve true market value through the competitive bid process. While the residential market is suffering from a dearth of buyers this absolutely not the case in commercial real estate. As I mentioned in a previous post, in November I watched a 1930s vintage 39 unit apartment building just south of Boston trade at what will probably prove to be a 6 cap. Although that deal wasn’t a proper auction the bid process was such that a similar result was achieved.

4) With an auction a buyer knows that he hasn’t overpaid. A public bid process ensures that the winning bidder only pays incrementally more than the next guy was willing to pay. A proper real estate auction virtually guarantees that you pay only up to the true market value. When you don’t know where the bottom is the peace of mind this bring is incalculable.

5) Sellers benefit by realizing the true market value within a predetermined time frame. While this isn’t necessarily the case if you’re auctioning a trailer in the Berkshires or some less desirable commodity it is absolutely the case when you’re talking about a quality commercial property in a desirable location that has been properly advertised.

Without a major change in the 2008 landscape of commercial lending, look for lenders, institutional sellers, and private sellers to use the auction method all year long to sell assets you might never have expected to see sold at auction, and watch for satisfied buyers and sellers both.