Receivers and investors are finding opportunities for profits in the surge in commercial foreclosures in Phoenix, particularly in the retail subsector.
Based on studies by a Phoenix commercial property firm, about 50 percent of the 1,753 large retail centers in Phoenix are in distressed situations as their values have dropped, vacancies have increased, rents have plunged and inquiries from new retailers have declined.
The number of retail centers and shopping malls entering Phoenix foreclosure auctions has been rising largely because of the difficulties of property owners to obtain additional loans or refinancing. As the recession worsened, consumers sharply cut down their spending, reducing retail sales and wiping out the abilities of retailers to pay their rents.
In turn, retail property owners got the brunt of reduced consumer spending as lack of rental income and lack of credit forced them to default and lose their properties to foreclosure.
The entry of residential properties into foreclosure auctions in Arizona has affected not only the housing market, but also the commercial sector. The fall in residential property values as a result of record numbers of housing units in foreclosed homes list has also pushed down commercial property values, as the collapse of the housing sector largely caused the economic downturn.
Among the most recent commercial foreclosures in the Phoenix metro area was the apartment complex called Empirian on Central. The two developers, Bush Realty on Central LLC and Empirian on Central LLC failed to pay their $39.5 million loan owed to Wells Fargo Bank, which holds the loan as trustee for mortgage security investors. The loan was taken out in 2005 to build the 414-unit apartment building.
Despite the devastating effects of foreclosures on property owners, these distressed properties provide investment opportunities for real estate investors and give more income-earning opportunities for receivers.
Receivers could be property managers and commercial real estate brokers who take upon the responsibility of stabilizing foreclosed properties after they are appointed by the courts. As foreclosures increased, several real estate firms have shifted more of their resources to receivership.
Currently, there are about 80 retail buildings in foreclosure and 40 of them have already been repossessed by the banks. Another 875 retail properties are underwater, including 120 already at risk of seriously defaulting from their development loans.
Phoenix analysts contended that commercial foreclosures in the retail subsector will increase sharply in the coming months, especially for properties acquired at inflated prices between the years 2005 and 2007.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.
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