Multi-round auctions for institutional real estate assets : theory and practice

Abstract

The theory of auctions has grown dramatically over the last four decades; it offers guidance and insights into the conduct of efficient and optimal auctions in real estate, and other industries. In this thesis an auction process used to sell institutional real estate assets in the US is identified. This auction came into being during the 1990s, and is now in common use. The auction is recorded though surveys with industry representatives and is characterized. Problems with the auction are identified, and solutions are proposed, referencing this auction to the body of auction theory. The auction consists of two rounds of sealed bid submissions, with attrition in the number of competitive bidders. After competitive bidding is complete a preferred bidder is selected, and engages in due diligence, a practice that often uncovers new information and induces renegotiation. Bids are not binding during the bidding process, because the auction is informationally incomplete. Sellers analyze bids based on the perceived quality of the bidder as a contractual partner, as well as the bid's value, complicating the objective selection of the best bidder. The auction is bilaterally incomplete and unstable, potentially influencing efficiency and optimality. Recommendations to improve the process are made. Descriptive statistics are formed and presented of multi-round auctions for institutional real estate assets.