I don't see how this prevents economics from taking over. If nobody bid over 12 million, thats a signal that nobody thought it was worth say 20 million. Otherwise they would have bid.
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).
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.
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?
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.
I guess you are using worth to mean potential value or something like that.
Say the loan amount on the building is 100m
you know you ain't getting for less than that because the lender will bid up to there at least if anyone is bidding. You think it's worth 20m? Go home, that bid will not win and everyone knows it. You bid 20, lender outbids you. you bid 30, again outbid as far as the loan amount at least. This 12.3M is the equivalent of the auction being passed in with a reserve price of the loan amount, whatever that amount is, possibly much higher than 12.3M. In this circumstance the auction is a farce and you could not buy it for 12.3M+ or anything like it.
I can't vouch for the truth or accuracy of _any_ of that, but I believe that is the point being made.
If the outstanding loan is $83M and you think it's worth $20M, you're unlikely to bid at all, it's not worth your time, since the lender is expected to bid $83M.
Now if you thought it was somewhere $75M to $80M, maybe the lender would rather a quick sale with a small loss, and it might be worth the time and expense to qualify to bid and attend.
This result tells us something about the market value, but not that much. It's a rushed sale without due dilligence, so that diminishes the value by an unknown amount, but we can say the diminished value is probably much less than the loan amount (which I believe from the report I linked elsewhere is $83M). I don't follow foreclosure auctions much, so I don't have a sense of what's the typical difference between a foreclosure auction value and a later willing seller sales value, but I imagine it would be significant most of the time.
The idea is to later resell it with additional time and prep for a better price.
Why get hit with a (made up) 5% auction fee and 20% tax burden on $80m vs just $12m.