The Republic details the coming wave of commercial foreclosures in the greater Phoenix area. From the article:
As the article points out, foreclosure notices on commercial property often don't mean the foreclosure is imminent for a variety of reasons. Commercial lenders are often more likely to try to figure out a workout on a large commercial loan (as opposed to a run of the mill residential loan). Commercial lenders don't really want a bunch of empty, devalued property on their books. They will need to pay money to manage the property and they will also have to write down the value of the asset to its market value - putting an even larger strain on their financials and potentially putting them in jeopardy of having their bank seized by federal regulators.
The realtors in the article don't sound too optimistic for the near future (rightly so in my mind):
More than 2,000 commercial properties in Maricopa County have received 90-day foreclosure notices since Jan. 1, representing $6.3 billion in real-estate loans on which the borrowers have failed to make payments.
As the article points out, foreclosure notices on commercial property often don't mean the foreclosure is imminent for a variety of reasons. Commercial lenders are often more likely to try to figure out a workout on a large commercial loan (as opposed to a run of the mill residential loan). Commercial lenders don't really want a bunch of empty, devalued property on their books. They will need to pay money to manage the property and they will also have to write down the value of the asset to its market value - putting an even larger strain on their financials and potentially putting them in jeopardy of having their bank seized by federal regulators.
The realtors in the article don't sound too optimistic for the near future (rightly so in my mind):
Isbel said there's no indication that the pace of commercial foreclosures is about to taper off. If anything, it's still building momentum.
"We're at the tip of the iceberg, there's no doubt," said Isbel, of Scottsdale-based GPE Commercial Advisors. "It's just a question of how big it is underneath."
The opportunity funds are starting to circle looking for great deals from banks, either in the equivalent of a "short sale" or purchasing directly from the bank after a foreclosure. The problem is that opportunity funds generally don't want to buy a commercial property unless they either think they will be able to lease it out to generate some short term cash flow, or they are getting an incredible discount in the price from the banks. My feeling is we still have a ways to go before banks decide to dump the properties at cut rate prices or commercial tenants start filling up some of the excess space. The former will likely occur first due to many distressed bank that just need cash. And that will be when the distressed deals start to happen here in Phoenix.
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