King Canute is alive and well in the Property Market
Posted by Morgan on 9th Nov 2012
James Wallace of Co-Star writes an interesting story about AIB's failure to sell Project Pivot. As I understand it, the seller re-opened the sales process having been chipped by the preferred bidder but was not happy with the level at which bids were coming in. So they called for best bids and set a reserve price higher than the initial bids. Guess what - none of the bidders turned up.
Just like King Caute with the tide, you can not dictate to buyers the price they must pay.
Every vendor has the prerogative to sell or not to sell but it does no one any favours when an asset is marketed at an unrealistic level. Bidders go to the time and the expense of conducting due diligence, they put forward credible offers, often with the vendors advisor cheering that the asset will definitely be sold, only for the sale to be withdrawn as the vendor does not accept the market price.
Price discovery is a key part of market economics but the reality is that good advisors and knowledgeable owners know where the market is. The majority of the unrealistic vendors know full well that they will not achieve their hoped for pricing in a market dominated by negative sentiment and limited debt finance.
The process is often part of an elaborate charade. This could be that the owner is proving to it's lenders or shareholders that they are exploring all options or that a bank is showing regulators that it is trying to de-leverage.
Yet, if there was true transparency assets would be marked to market in a manner that eliminates the need for charade. Honesty and transparency would help regain investor faith in real estate and the banking sector. It would be painful at first but thereafter it would create liquidity and quite possibly a market rally, as seen in the US. It would also stop wasting peoples time working hard to try and buy asset that are not available for sale despite being 'for sale'.