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By Steve Bergsman
Unlike in the residential real estate world, the commercial
sector has not been flooded with foreclosed properties. This
doesn’t mean that a lot of investments didn’t go bust, but for
a variety of reasons, the banks holding bad loans have held
back from massively dumping foreclosed industrial, office,
retail, and hotel properties back into the market.
In some instances, the banks didn’t want to write down
the losses, and in other situations the lenders would work
with borrowers by extending the terms of the loan. In either
case, the result was a more moderate flow of broken commercial real estate returning to the sell-side than most
“There was an expectation that there was going to be
a great degree of foreclosure activity during 2010, but we
didn’t see as much as we anticipated,” observes Jeffrey
Castell, SIOR, CCIM, a principal with Cassidy Turley
Commercial Real Estate Services in Indianapolis. “Some of
the lenders are working through issues with borrowers, as
opposed to taking back and managing properties.”
That shouldn’t be the case in 2011. Most of the SIORs
interviewed for this story predict they will be busier with
foreclosures this year than the past couple of years.
“We do expect to see more foreclosed properties come
to market in 2011 based on the fact that we continue to do
the pricing of those properties for a whole array of people,
from borrowers through to special servicers and lenders,”
This is not a good thing for the economy, but it will
increase SIOR business.
The question is, what’s the best way to deal with foreclosed properties? These buildings need to be marketed just
“The buyer has to get to a
comfort level before jumping
into what on the surface either
looks like a good deal or a
hornet’s nest of problems.”
like any other industrial or office structure, but by the same
measure, a commercial property with a bad history requires
a few extra touches to make it sellable.
“With foreclosed properties, you have to adjust the level of
understanding,” Castell notes. “There are just different moti-
vations associated with foreclosures than there would be in a
customary marketing assignment.”
From Castell’s perspective, it’s important to start the
journey not only with a clear understanding of the seller’s
objectives, but also with a realistic evaluation of the physi-
cal property conditions, the property attributes, the struc-
tures of deals in place, and most importantly, what’s going
on between the owner and the tenants.
Castell is currently working a bank-owned industrial
portfolio that was cross-collateralized with other nonperforming assets by the same borrower. The lender decided to
proceed with a foreclosure on the whole portfolio, includ-