New DebtX Study: Sealed Bids Maximize CRE Loan Sale Prices
New research from Boston-based DebtX shows that sealed bids for non-performing Commercial Real Estate (CRE) loans consistently produce loan sale proceeds 10% to 20% higher than English forward auctions.
Based on an analysis of loan sales at DebtX’s marketplace since 2010, the study found that a sealed bid generates higher prices because the format leads to outlier offers more frequently. The often uncertain value of non-performing loans accounts for the wider dispersion of offers by bidders.
“If price maximization is the goal, institutions should stop using an English forward auction for non-performing CRE loan sales," said DebtX CEO Kingsley Greenland in a statement. "A sealed bid format consistently delivers higher proceeds and is a better option for every institution selling a non-performing CRE loan.”
DebtX found that English forward auctions don’t maximize loan sale proceeds due to a variety of factors, including shill bids, insider bidding and the assessment of a 5% sales fee to successful bidders in an English forward auction.
The study also noted that loan sale proceeds for English forward auctions can exceed the results of sealed bids, but only when a bidding war occurs. The research showed, however, that bidding wars for non-performing CRE loans are atypical and are difficult to predict in advance.
To download the study, visit https://www.debtx.com/Contact/WhitePaper.asp.
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