Picture: THINKSTOCK
Picture: THINKSTOCK

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REAL estate investment trusts (Reits) are starting to consider the auction market as a means of acquiring properties, according to joint MD of High Street Auctions Lance Chalwin-Milton.

Some Reits have struggled to make property acquisitions directly from sellers in SA in the past six months. They have been stifled by higher interest rates and borrowing costs that exceed rental income from many properties.

Some Reits have shifted their expansion plans offshore or are waiting for better market conditions to grow their portfolios.

However, Mr Chalwin-Milton said this week that auctioneers were able to be strong middlemen that could help connect listed property groups with other listed funds and private or state sellers of assets.

"When it is harder to agree on a price because market conditions are tough and there are fewer willing sellers, we as an intermediary can work to find assets for potential buyers that they may have missed, and which are actually well-suited to them."

However, he said, it was still early days for listed companies building relationships with auctioneers, but he expected more to investigate the buying method. "I think more will come on board and make buying through auction an option over time. For one thing, relatively little of what we have seen in the market are distressed properties, so this is attractive to listed funds," Mr Chalwin-Milton said.

Redefine Properties CEO Andrew Konig said auction-buying was not on his agenda.

"Redefine has not acquired its properties through auctioneers — we prefer doing deals directly with the seller," he said.

High Street Auctions was launched in 2010 and has progressed in the past 18 months to auctioning properties worth hundreds of millions of rand. Many of these were commercial assets and land in which listed companies saw value, Mr Chalwin-Milton said.

"Much trust was lost in the auction industry in 2011 and 2012. There was a time when the industry did R6bn in value a year, but this collapsed to about R1.5bn around that time with the ghost-bidding scandal. We had just come on the scene and had to do a lot of work to show that we were an extremely professional company and that all of our processes were above board. I believe that quite a few auctioneers have done so too, and this is why investors and corporates are buying again," he said.

Last year, High Street Auctions auctioned the Kyalami race track property for R205m, the highest price for a property in liquidation in SA’s history. Mr Chalwin-Milton said this had been a game-changer for his firm.

High Street had also launched a new sale by tender-type of auction. This year, the first auction in this type has been completed with a R700m commercial property portfolio being sold. The portfolio comprised 10 buildings.