Commercial Foreclosure – Next Exit

foreclosure-extiWe cannot ignore the serious potential for commercial foreclosures inherent in the financial market today. To do so would be disingenuous and a violation of ethical standards related to client fiduciary.

What is the state of the commercial foreclosure market?

Will we see mortgage defaults in the commercial sector? Will the degree of defaults parallel the residential market collapse.

Sand State Foreclosures. Nevada, Arizona, California and Florida, the so-called “sand states” are experiencing the beginning of what can only be described as a plummet (my word).

According to the Las Vegas Sun, April 2, 2009, 25% of Las Vegas commercial real estate is troubled and Commercial properties valued at a whopping $7.885 billion are in trouble in Las Vegas as casinos struggle under the weight of the recession and office buildings and shopping malls lose or are unable to find tenants.

This phenomenon is being replicated in each of the “Sand States” as the federal government’s promised mortgage financing relief continues to be illusive to commercial investors.

On a National Scale: Getting Ugly. “We haven’t yet seen the worst of the effects of the recession on the commercial markets,” said Stuart Saft, a partner at the law firm of Dewey & Leboeuf LLP in New York, who specializes in real estate. “That’s still to come.”

Indeed, according to Real Capital Analytics, “Delinquent loans increased by 43% in the first three month of this year to $US65.9 billion, according to data from New York-based research firm Real Capital Analytics Inc. That’s up from $US46 billion at the end of 2008.”

Worse yet, the decline in commercial real estate values is now at 30% since peaking in 2007 and predicted future declines may add another reduction of 11% in 2009.

According to Deutsche Bank AG’s report on March 25, 2009, the number of commercial repossessions by banks will spike in the next 18 months.

View the full article on WA Today: Defaults Rise, Worst Yet To Come For Commercial Property

The Los Angeles metropolitan area has about $US7.5 billion distressed properties, a 168% jump from December. Las Vegas had a 54% increase, to $US6.1 billion, Real Capital said.

Metropolitan areas with more than $US1 billion of commercial properties in distress more than doubled to 11 from five. Philadelphia, Chicago, San Francisco, Austin and Houston, Texas, and Detroit joined New York, Las Vegas, Miami, Phoenix and Los Angeles.

Manhattan distressed commercial real estate has risen by 36% this year to $US4.2 billion, according to Real Capital.

Real Capital Analytics (RCA) tracks distressed commercial properties and their disposition via its Trouble Asset Radar and reporting tool.

A search of RCA troubled assets for the Southwest United States yielded the following results:

US Southwest U.S. Distressed Commercial Assets

There is no question about the decline of commercial real estate values and with such declines, troubled assets, foreclosures and commercial REOs will become a contemporary reality.

My Advice. Investors-owners should be agressively pursuing alternative financing where needed and/or, releasing properties through strategic sales where seller financing is allowable.

On a positive note here are the most active commercial market in the US according to RCA.


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