Zombies!  They’re everywhere!  In the movies, on TV, at the corner strip mall!  As you might guess, “Zombie” properties are those commercial and industrial properties that are vacant, under-performing, or underwater financially, the “walking dead” of real estate.  Commercial properties have vacant stores with large “For Lease” signs pasted over the windows, and the owners don’t have the funds to either invest in capital improvements, or even carry the mortgage debt.   Industrial properties are vacant, boarded up, with weeds growing in the parking lot, because the owners handed over the keys to their lenders after being forced out of business.  Zombies have gone through default and foreclosure, may be bank-owned, and are on the market at drastically reduced prices, allowing new investors to come in and purchase them for a fraction of what the last owner paid.  The problem is that the new owners can operate these zombie properties for less, attracting tenants with lower rents, and thereby depressing or “killing” the leasing market for neighboring landlords still struggling to operate their properties at a higher expense ratio.  The old guard investors are looking for Buffy, the vampire slayer, to get rid of these zombies, but she’s nowhere to be found.

According to the Wall Street Journal, special servicers sold $11.6 billion in distressed loans and foreclosed properties last year, an increase of $4 billion over the prior year, and $10 billion over the year before that.  Most of these properties are small, less than $10 million each, and are ripe for the new breed of local small investors who are causing grief to the larger, established real estate developers.

So, are zombies good?  You could argue zombies are bad because they are depressing the sales and leasing markets.  On the other hand, aren’t those new property investors doing us a service by buying zombie properties, and bringing them back to life, eventually ridding us of the zombies out there?  So, perhaps Buffy really is out there, in the form of these new small investors who are becoming invested in their own neighborhoods, and revitalizing properties that were zombies but are zombies no more.