There has been a lot of concern by those in the commercial real estate that loans maturing in 2016 and years to follow would lead to mass defaults and foreclosures.
The picture is currently more encouraging.
ATTOM Data Solutions recently said that foreclosures in September dropped 24 percent year over year, reported GlobeSt.com. Additionally, they fell 13 percent from August. It is the first time since 2007, when ATTOM started tracking foreclosures, there was such a substantial turnaround.
This is reportedly taking place because banks and lenders have worked through “legacy” foreclosures, and more of the defaults taking place are not recession related, but more recent.
Meanwhile, properties around the country that previously foreclosed are being acquired at a rapid rate, due to increased demand from a lack of new construction hitting the market.
In downtown Milwaukee, for example, a foreclosed four-story office building was snapped up by an investor for a meager $1 million. In plenty of larger, secondary-city markets, downtowns are being revitalized at a rapid pace, due to the preferences of both millennials and empty-nester baby boomers moving to places where they can walk or use public transportation instead of relying on a car.
An example of a firm buying assets such as these around the country is The Bascom Group. The Irvine, Calif.-based outfit has reportedly purchased $10.5 billion of commercial real estate properties since its founding in 1996. This strategy has paid off in at least one case. Bascom and a partner purchased and renovated Breakers Resort, a major Denver-area multifamily complex, in 2006 for $190 million. Earlier this month, Breakers was sold to a joint venture for $350 million.
So this is good news on two fronts. While commercial real estate foreclosures seem to be decreasing overall, there is plenty of capital out there seeking assets with non-performing loans. This doesn’t likely seem like it will wane any time soon. Due to Brexit, and other global factors, there is a flood of money coming into the United States, as it is viewed as a stable economy. Most of it is currently going toward trophy assets in gateway cities, but as investors see the high returns that can be had in secondary markets and underperforming assets, that is bound to change.
Despite all of the doom and gloom that the recession caused the commercial real estate industry, it looks like investors, based both domestically and abroad, are willing to take a chance on riskier properties in an environment with little new-construction supply.