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CORRECTED-Auction.com-Situs deal aims to move commercial property beyond local arena
June 8, 2015 / 1:02 PM / 2 years ago

CORRECTED-Auction.com-Situs deal aims to move commercial property beyond local arena

(Corrects to remove reference to Wharton School in 8th paragraph)

By Herbert Lash

NEW YORK, June 8 (Reuters) - Auction.com, an online marketplace for property backed by Google Inc and real estate mogul Barry Sternlicht, signed a deal with a commercial real estate advisory firm to provide due diligence in a step to enhance its services and help move sales further beyond the local arena.

The deal announced Monday with Houston-based Situs coincides with growing national and international interest in commercial real estate that 15 years ago was an entirely local market, the partners in the deal said.

Situs will provide Auction.com clients with standardized operating statements, including expense categories and a review of rent calls. The service, which will start in August, comes as the distressed market in which Auction.com began in 2007 resides.

"This is a very different market that Auction is going into now and one that's gaining market acceptance just by the sheer transaction volume that they're experiencing," said Steve Powel, chief executive officer of Situs, which has evaluated more than $1 trillion in commercial real estate over the past 30 years.

Half of Auction.com's sales are now commercial real estate, of which 60 percent to 70 percent are out of state, said Rick Sharga, executive vice president of the Irvine, California-based company.

"The service we're going to provide here is one of the ways that the individual investor gets to play on a more level playing field with the bigger guys," Sharga said.

Assets to receive due diligence are expected to exceed $5 billion annually, in more than 1,500 deals, the two firms said.

Automated programs for commercial real estate already exist, such as those sold by Argus Software Inc, said Jesse Keenan, research director at Columbia University's Center for Urban Real Estate. Argus is unit of Altus Group Ltd.

"What really matters in these small deals is the validity of rent rolls, of abstracting leases and reviewing inspection reports for tenant improvements," Keenan said.

"The numbers are simple. The real business decisions come from things that just can't be automated," he said.

Terms of the transaction were not announced, but Powel said it was a standard third-party professional services contract.

The deal was facilitated by Stone Point Capital LLC, a private equity fund that acquired Situs in April and has been a significant investor in Auction.com since its beginning. Stone Point is headed by two former senior partners at Goldman Sachs & Co. and has about $13 billion in committed capital.

Auction.com typically takes a 5 percent commission, though it can vary, Sharga said. The firm generated more than $7 billion in sales both in 2013 and 2014. The value of deals this year is running ahead of that pace, he said.

The firm's shareholders include Starwood Capital Group and Starwood Property Trust Inc - Sternlicht is chairman of both - and funds managed by affiliates of Fortress Investment Group LLC.

Google Capital, a Google Inc-backed fund, made a $50 million investment in Auction.com last year on the belief it will fundamentally change how real estate, in particular commercial, is transacted.

In May, Auction.com partnered with Chinese property portal Juwai.com to reach investors in China. Auction.com's offerings have yet to be posted on Juwai.com, but Sharga said they've already seen interest from Chinese investors. (Editing by Leslie Adler)

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