Is A Commercial Foreclosure Crisis Next?
Go to any major metro area and you can always find a slew of downtown high-rise apartment buildings, office parks, shopping malls, and warehouses. Just like single-family homes and condos, these commercial properties are “real estate” too — and often real estate with a mortgage.
Writing in the Dallas Morning News, Steve Brown notes that “commercial property foreclosure filings in Dallas-Fort Worth have risen 12 percent so far in 2009.”
“With the credit crunch and worsening economic conditions,” says Brown, “a growing number of commercial building owners have been unable to meet their debt requirements. Most analysts expect commercial property foreclosures to increase significantly during the rest of the year and into 2010.”
The problem for commercial property owners has several features.
Retail Chains In Trouble
First, there is simply less commerce. Major chain retailers are going out of business, leaving vast quantities of empty store space and warehouse square footage behind. Think of Circuit City, Ritz Camera, Drug Fair, and KB Toys. Others are just reducing the number of stores they operate such as Starbucks (200 US stores to close) and Pier One Imports (100+ stores).
Commercial Financing Is Gone
Second, in many cases a commercial property is actually fine in terms of cashflow but has been financed with a big loan that only lasts five years. Now the loan is up but there’s no refinancing available because banks are holding on to their money — whoops, in many cases they’re holding on to our money. In a sense, when viable commercial properties cannot be refinanced you have an artificial bankruptcy, something created at the option of lenders and something that is unnecessary.
While the number of commercial properties is very much smaller than the number of residential homes, when individual commercial properties fail the size of the loss can be enormous, often well in excess of $100 million. In addition to money, of course, commercial properties are where people work. As people lose their jobs that surely doesn’t help local merchants — or communities.
For the full story in the Dallas Morning News, please see Commercial foreclosures up 12% this year
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