Off the Fence
Auction creates sense of urgency for Virginia property.
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.
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
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
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
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.