3 ms·

The worth of the building is only one of the factors. The other side is the risk. Actually, the worth side is relatively easy to calculate. But the risks are h

The worth of the building is only one of the factors. The other side is the risk. Actually, the worth side is relatively easy to calculate. But the risks are hidden. Likely there wasn't access to do a proper inspection. Likely tenant leases are not visible. In some cases outstanding bills (especially taxes) come with the building (and are unknown, and likely significant since the seller defaulted on this loan.) So auction prices don't reflect "worth" they reflect "risk". Usually these unseen costs exceed the hammer price (sometimes by a lot).

maxerickson 2y ago
I don't see how there's a coherent split between value and risk. I guess you are using worth to mean potential value or something like that.
walrus01 2y ago
A very large office building built in 1981 is going to be coming up on the need for some expensive plumbing repairs very soon, if there's no record of it being done recently. And probably contains lots of other unrefurbished space that couldn't be rented out at grade A office space $/sqft rates. Interestingly enough the building does seem to have a marketing website which shows several full-floor office spaces for rent with floor plans, but no photos of the space.
Y_Y 2y ago
Shoulda called it Fort Risk
usrusr 2y ago
Who buys the bidding procedure? Is it the main lender or someone instated by the main lender? That would certainly create an incentive for maximising uncertainty if there are other lenders the profits will be shared with. But the mechanism mentioned in sibling comments is even stronger: if there is a clear main lender and your limit is lower than the known lowest limit of the main lender, you won't bother bidding.
- bruce511 2y ago
  It's the lender that holds the building as collateral.
michaelt 2y ago
> Likely there wasn't access to do a proper inspection. Likely tenant leases are not visible. In some cases outstanding bills (especially taxes) come with the building (and are unknown, and likely significant since the seller defaulted on this loan.) I'm confused. Is there not a seller? Does the seller not benefit from maximising the sale price? Even if the building owners are bankrupt, don't the administrators have to maximise the sale price in order to pay back creditors?
- bruce511 2y ago
  It depends. I can't say for this case. In general though there's the situation of "unwilling seller". They aren't necessarily bankrupt. Usually they have had ample opportunity to sell themselves but for whatever (usually irrational) reasons have not. They often are not cooperative in the sale process. Administrators are much more likely to be cooperative, but even then there is added risk because the seller won't be around to address latent defects. And you can assume other debts against the building (like taxes) may exist. Obviously the specifics will be jurisdiction dependent.

maxerickson 2y ago

I don't see how there's a coherent split between value and risk. I guess you are using worth to mean potential value or something like that.

walrus01 2y ago

A very large office building built in 1981 is going to be coming up on the need for some expensive plumbing repairs very soon, if there's no record of it being done recently. And probably contains lots of other unrefurbished space that couldn't be rented out at grade A office space $/sqft rates. Interestingly enough the building does seem to have a marketing website which shows several full-floor office spaces for rent with floor plans, but no photos of the space.

Y_Y 2y ago

Shoulda called it Fort Risk

usrusr 2y ago

Who buys the bidding procedure? Is it the main lender or someone instated by the main lender? That would certainly create an incentive for maximising uncertainty if there are other lenders the profits will be shared with. But the mechanism mentioned in sibling comments is even stronger: if there is a clear main lender and your limit is lower than the known lowest limit of the main lender, you won't bother bidding.

bruce511 2y ago
It's the lender that holds the building as collateral.

michaelt 2y ago

> Likely there wasn't access to do a proper inspection. Likely tenant leases are not visible. In some cases outstanding bills (especially taxes) come with the building (and are unknown, and likely significant since the seller defaulted on this loan.) I'm confused. Is there not a seller? Does the seller not benefit from maximising the sale price? Even if the building owners are bankrupt, don't the administrators have to maximise the sale price in order to pay back creditors?

bruce511 2y ago
It depends. I can't say for this case. In general though there's the situation of "unwilling seller". They aren't necessarily bankrupt. Usually they have had ample opportunity to sell themselves but for whatever (usually irrational) reasons have not. They often are not cooperative in the sale process. Administrators are much more likely to be cooperative, but even then there is added risk because the seller won't be around to address latent defects. And you can assume other debts against the building (like taxes) may exist. Obviously the specifics will be jurisdiction dependent.