Valuation Marketing

Off the Fence

Auction creates sense of urgency for Virginia property.

By Jim Tucker, CCIM |

After years of owning and operating a unique entertainment destination on the outskirts of Williamsburg, Va., Jack Barnett faced a tough financial decision: sell the 79.6-acre property, which had been owned by his family for nearly 50 years, or consider possible foreclosure.

Barnett chose to sell the property, eventually receiving almost $11 million for the seven buildings totaling nearly 280,000 square feet. But the sales technique he used wasn’t a traditional one. The well-known property sold only after a sealed bid auction was scheduled.

Unappealing Offers

In the late 1950s, Barnett's father, John B. Barnett, Sr., was drawn to the opportunities created by the Colonial Williamsburg tourism industry and moved his family to Williamsburg from Virginia Beach. He purchased five acres along Highway 60, which was the main thoroughfare into the city, and opened a gift shop in an old 5,000-square-foot barn that sat on the property. It became obvious that candles were the gift shop's best seller and Barnett decided to start manufacturing his own candles on the property. As the business grew the Barnett family added several other retail shops, a restaurant, and a large manufacturing facility to host candle-making tours. The candle factory proved to be a popular tourist attraction.

Young Jack and his father were a team in management and development of the properties from the outset. In 1998, they established the property as an entertainment destination by developing a 750-seat theater for plays, musicals, and concerts that opened in the mid-1990s. The theater required significant investment, and just before it began to turn a profit, the terrorist attacks of Sept. 11, 2001, occurred, and the tourism sector of the economy slipped into a deep recession. The theater failed, leaving Barnett $6.9 million in debt.

Barnett's original efforts to sell the business through a business broker were unsuccessful. He was referred to Sperry Van Ness to sell the property by a friend who had just successfully sold his business using SVN. Five months of intense marketing in the national brokerage and investment community –- including the additional incentive of a 50-50 split broker commission of up to $700,000 –- resulted in plenty of offers for the property, which was listed at $13 million.

Potential buyers saw the promise in the property given Williamsburg's impressive economic growth. James City County, where the property is located, is one of the fastest-growing areas in Virginia partially due to its popularity as a retirement and tourist destination. Although potential buyers thought the candle factory property would be ideal for a large-scale, mixed-use project, Barnett’s indebtedness would not allow acceptance of contingent offers. He needed a buyer who would be willing to close quickly, and all of the offers were contingent upon getting new zoning approvals for the property, a process that would take a minimum of two years.

Sense of Urgency

Barnett’s circumstances made a non-traditional solution, such as a sealed bid auction, an attractive alternative.

While in some cases sellers aren’t willing to consider accelerated marketing because they feel auctions seem like desperate measures or fire sales, auctions simply are another arrow in the quiver. Auctions can attract a wider net of possible buyers and create a sense of competition and urgency among buyers. Experienced real estate professionals know that setting a deadline for a sale moves buyers off the fence; too many buyers have suffered the agonies of losing a great deal to a competitor.

As the leaders of SVN' accelerated marketing group, Louis Fisher and I met with Barnett and his bankers, explaining to everyone involved the auction process and how it might satisfy all the bank's requirements and possibly provide Barnett with cash to fund his planned retirement from the business.

The bankers were so confident that the auction would be successful that they advanced $60,000 to cover marketing expenses promoting the auction. With a minimum bid price of $6.9 million –- the amount Barnett owed the bank –- the auction called for all potential buyers to submit an offer based on the published seller’s contract and to close in 30 days if they won the bid.

Finding the Winning Bid

To market the property, the SVN accelerated marketing team designed and implemented a national marketing campaign, which included multiple large ad insertions in the Wall Street Journal and industry trade publications, direct mail marketing, signage, telemarketing, adding links to an online notice of sale to industry trade publication Web sites, local and regional print media advertising, and e-mail blast notification to more than 500,000 opt-in portal distribution channels.

The auction was designed so the sealed bids would be delivered to Barnett's attorney and held in confidence until the final day of the auction. At that point, Barnett would open the bids, pick the top three bidders and then invite those bidders to participate in an open outcry auction. In addition, the auction process allowed potential buyers to make an offer directly to Barnett, which kept him in control of the process from start to finish. Sure enough, five days before the auction was scheduled to take place, a local investor stepped in and locked down the deal with a $1.1 million forfeitable deposit and Barnett canceled the auction.

In this particular instance, the property wouldn't have sold so quickly without the impetus of the auction. The $11 million generated from the sale allowed Barnett to pay off his loan and put some money in his retirement fund. He didn’t have to sacrifice the property at a discount price or lose it to foreclosure. Meanwhile, the new owner submitted a rezoning plan to the county shortly after buying the property, and has sold the candle factory buildings to an investor and the theater to a local church.

“I am very impressed with how the structured auction encouraged potential buyers to engage in the process and produce a rapid conclusion,” Barnett says. “SVN’s marketing plan was very impressive and effective, resulting in interest from more than 11 states.”

While the success of the auction clearly was the result of invoking the deadline of certain sale with an attractive minimum bid price, none of it would have been possible without Barnett’s willingness to act promptly. Open communication with lenders and being open to creative solutions, especially in changing markets are the keys to making an auction successful. And most importantly property owners must act quickly and schedule the auction when the time is right.