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Home Auctioneer REDC to Sell Commercial

Irvine-based Real Estate Disposition LLC became one of the country’s busiest housing real estate companies during the downturn.

The company—better known as REDC—isn’t slowing down, said Chairman Rob Friedman.

“We’re expecting to grow, for at least another year,” he said.

The company, which auctions off foreclosed homes for mortgage lenders as well as excess properties from struggling homebuilders, has helped sell more than $6 billion worth of homes since 2007.

More than 34,000 homes have been auctioned off this year by the company, which was formed in 1989 by childhood friends Friedman and Chief Executive Jeffrey Frieden.

REDC auction events across the country have drawn tens of thousands of prospective homebuyers, as well as front page coverage this year from publications such as the Wall Street Journal and New York Times.

“We’ve got a great business, but real estate has its typical cycles,” Friedman said.

That’s one reason the privately held company, which employs about 300 people out of its Irvine Spectrum headquarters, has been branching out of late.

In September, REDC announced a venture with Chicago-based brokerage Jones Lang LaSalle Inc. to auction off distressed commercial real estate properties online.

Commercial real estate is widely expected to be the next shoe to fall in the economy. The default rate on commercial mortgages held by U.S. banks is expected to rise to its highest level in 17 years by the end of the year, according to figures from New York-based Real Estate Econometrics.

The REDC and Jones Lang LaSalle venture has about 50 properties scattered across the country that are up for sale, including 10 former Home Depot locations. Those buildings are expected to be sold in a Dec. 7 online auction.

In addition to taking on commercial properties, the company last week expanded its operations by adding a title insurance line of business. REDC said it would be buying the retail title insurance agency business of Commerce Title, a division of Pulte Homes Inc.

The acquisition, expected to close early next year, will add about 130 employees to REDC. Terms of the deal weren’t disclosed, but REDC officials said it’s the company’s largest acquisition to date.

Earlier this year, REDC bought the domain rights to the Web site Auction.com for $1.7 million.

The company’s not expecting a slowdown in its core business of auctioning lender-foreclosed homes, even though there’s been signs nationally that the foreclosure crisis might be waning.

Foreclosures were down 3% in October from September, the third straight month of declines.

But October’s foreclosure levels still are 19% higher than a year earlier, according to Irvine-based RealtyTrac Inc.

One out of every 385 homes in the U.S. received a foreclosure filing in October, according to RealtyTrac figures.

Based on discussions with the banks REDC works with, Friedman said it still expects to have plenty of auctions next year, although the types of homes it will be selling could change.

Foreclosures of homes that were financed with subprime loans appear to have worked their way out of the system. But other types of risky loans made for higher-end homes—such as Alt-A loans, negative amortization loans and other no-equity lending—have yet to hit the market in earnest, he said.

“I think there will be another wave,” Friedman said.

The company has been holding about 300 in-person auctions a year since 2008, in addition to running online auctions.

REDC works with about “90% of the banks” that now have foreclosed homes on their books, he said.

That’s a far cry from the company’s start in 1989, when the country was in the midst of another recession.

The company’s founders are both Orange County locals—and friends from childhood. Frieden got his first taste of the auction business working at swap meets when he was a teenager, he said.

REDC’s first auction was for 54 homes owned by a local developer. The company sold them all for about $10 million.

The duo operated the business in cycles. They effectively would shut down REDC when the housing market was strong, working instead on land development opportunities. They would start the business again when the housing market started to show signs of weakness.

For the most recent downturn, the company initially used Irvine-based Impac Mortgage Holdings Inc. for its primary source of foreclosed properties, before grabbing more work from other lenders.

In addition to REDC growing source of bank partners, it has been growing its customers.

The company counts 3.9 million leads in its database, according to Chief Marketing Officer Michael Jansta.

Marketing remains the biggest expense for the company, which uses flashy print advertising, TV and radio ads, colorful signs and telemarketing to generate interest in its auctions.

“They make the money, and I spend it,” Jansta said.

People looking to buy individual properties to live in themselves make up more than 60% of buyers of REDC’s properties, according to the company.

In more expensive markets like OC, individual homebuyers outpace investors at an even greater pace, Friedman said.

But investors still are playing a big part for REDC. It’s not uncommon to see a cash-flush investor snap up 10 to 30 homes at a time at some auctions, particularly in the most distressed markets, such as the Inland Empire, Phoenix, Las Vegas and parts of Florida.

For buyers looking for the best deals, those areas “are where the deepest discounts are,” Friedman said.

The privately held company doesn’t disclose its revenue or profits. Friedman said that REDC stands to exceed $3 billion in gross sales this year.

About a year ago, REDC sold a 50% interest in the company to Stone Point Capital LLC, a Greenwich, Conn.-based private equity firm whose executives count ties to Goldman, Sachs & Co.

Friedman said he wouldn’t rule out another sale in the future, but he prefers that the company remain private.

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Mark Mueller
Mark Mueller
Mark is the Editor-in-Chief of the Orange County Business Journal, one of the premier regional business newspapers in the country. He’s the fifth person to hold the editor’s position in the paper’s long history. He oversees a staff of about 15 people. The OCBJ is considered a must-read for area business executives. The print edition of the paper is the primary source of local news for most of the Business Journal’s subscribers, which includes most of OC’s major corporate and community players. Mark’s been with the paper since 2005, and long served as the real estate reporter for the paper, breaking hundreds of commercial and residential real estate stories. He took on the editor’s position in 2018.
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