Commercial Foreclosures Bring Trouble

Recent studies show a marked year-over-year uptick.

Lew Sichelman
Lew Sichelman

The repo man is finding more work in the commercial real estate industry, two recent reports show.

Commercial foreclosures rose 6 percent in March of this year and were up 117 percent from March of 2023, according to ATTOM data.

Similarly, the Mortgage Bankers Association released data showing that while 97 percent of all property loans were current or less than 30 days late, there was an uptick in those that were behind by 90 days or more from 2.3 percent in last year’s fourth quarter to 2.5 percent in the three-month period ending March 31.

If those properties continue to fall behind—and others join them—repossession numbers are more than likely to continue to rise.

ATTOM, a property data analytics company, reported that the low point for foreclosures of all commercial properties was in May 2020, when lenders filed on just 141. But 625 notices were filed in March of this year.

That’s a 117 percent year-over-year increase compared to the 2020 low. But it’s still below the peak of 889 foreclosures that were dropped by lenders in October 2014. 

Where foreclosures are coming down

California saw the highest bump in commercial foreclosures in March, coming in at 187. That marks an 8 percent decrease from February but a 405 percent jump from a year ago, the ATTOM report shows. This escalation has been taking place since more than 100 commercial foreclosure cases occurred in November 2023.

New York, Florida, Texas and New Jersey have also seen a continual rise in the number of commercial repossessions. In March, 161 were recorded in New York, 60 in Florida, 55 in Texas and 42 in New Jersey.

The ATTOM report incorporates documents filed in all three phases of foreclosure: Default, including notices of default and lis pendens filing; Auction, including notices of trustee sales and of foreclosure sales; and Real Estate Owned properties that have been foreclosed on and repurchased by a bank.

Almost 7 percent of all loan balances were 30 days or more delinquent at the end of the quarter. That’s up from 6.5 percent at the end of 2023.

Loans per property type

The latest ATTOM report did not break down individual commercial real estate sectors but the MBA reported that office property-backed loans drove the increase in late payments.

“Loans across property types are adjusting to higher interest rates and uncertainty about property values,” Jamie Woodwell, head of commercial real estate research, MBA, said in prepared remarks. “But the continued fog around the impact of hybrid work adds another challenge for office properties and their loans.”

Woodwell noted that all commercial property types face numerous challenges, including their locations, loan sizes, maturity, owner’s stability and the patience of their lenders. “Each of those factors will play a part in determining which loans may face challenges and which may not,” he added.

In other commercial sectors, 6.3 percent of the balance of lodging loans were delinquent, up from 6.1 percent from the last quarter of 2023; 4.7 percent of retail balances were late, down from 5 percent from the previous quarter; 1.2 percent of multifamily loans were behind, unchanged; and 1.2 percent of industrial loans were in arrears, up from 0.9 percent.

According to the MBA’s count, 20 percent of the $4.7 trillion in outstanding commercial mortgage debt will mature this year.

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