Rise in Commercial Foreclosures Signals Economic Trouble

ATTOM is a nationally recognized research and data aggregator that tracks commercial foreclosures across the country. The latest economic indicators are that the number of commercial foreclosures across the country has increased 117 percent from March of 2023, according to ATTOM’s most recently published data. In addition, the Mortgage Bankers Association recently released data showing that while 97% of all property loans were current or less than 30 days late, there was a decided uptick in those that were behind at least 90 days or more from 2.3 percent in 2023 to 2.5 percent in 2024 during the three months ending March 31. If those properties continue to fall behind and other properties join them, then the number of foreclosures is likely to rise.

During the height of the pandemic, commercial foreclosures reached a low point in May 2020 with only 141 foreclosures being triggered across the U.S. Today, that number has skyrocketed to 625. We haven’t seen foreclosures reach this rate since 2014 when there were 889 foreclosures in October 2014.

Office Property Is among the Most Likely Foreclosed Commercial Real Estate

While the latest ATTOM report did not break down individual commercial real estate by type, the MBA reported that office property-backed loans drove the increase in late payments and subsequently, foreclosures. According to the head of commercial real estate research at MBA, “Loans across property types are adjusting to higher interest rates and uncertainty about property values. But the continued fog around the impact of hybrid work adds another challenge for office properties and their loans.”

In other words, more individuals working from home has decreased reliance on office space resulting in some businesses falling behind on their mortgage loans. With a decreased emphasis on in-office work, the trend of commercial foreclosures may continue into the future.

In other commercial sectors, 6.3 percent of the balance of lodging loans were delinquent. This shows an increase from 6.1 percent in the last quarter of 2023. 4.7 percent of retail balances were late, which is actually a decrease down from 5 percent in the previous quarter. 1.2 percent of multifamily loans were behind or unchanged. 1.2 percent of industrial loans were behind, an increase from .9 percent.

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

Economic Downturn Driving Commercial Property Foreclosures

Economic recessions or downturns can lead to decreased consumer spending. Currently, prices for common household items, food, and other necessities have skyrocketed and consumers are spending less in this economy. Meanwhile, rent costs have also increased, reducing the amount of disposable income that consumers have. This has been a difficult period for some U.S. businesses while others have posted massive profits. Office-based businesses have seen the greatest rates of commercial foreclosure in the present economy, according to ATTOM and the MBA.

Experts Say South Florida Market Mostly Immune to Commercial Foreclosures

There are plenty of worries concerning commercial real estate and the risks mass foreclosure poses to the banking industry and economy. However, experts here in Florida believe that South Florida’s market is mostly immune to the potential problems facing other areas of the country.

U.S. Treasury Secretary Janet Yellen told Congress in February it was “obvious there’s going to be stress and losses” in commercial real estate, particularly with office buildings. However, she described the challenges as “manageable.”

One South Florida developer is not among those who are worried about commercial real estate posing problems in South Florida. He recently purchased a 50-year-old, 13-story office building in downtown Coral Gables in August. The property was purchased for several million dollars less than it was last sold for over a decade ago. Office buildings are now part of a buyer’s market, but with the number of foreclosures surrounding office buildings, some still see it as an indicator of economic distress.

Many developers across the country are purchasing this office space to renovate it into residential properties. This could be the trend moving forward as rents continue to skyrocket leaving consumers with less disposable income to reinvest into the economy.

Nonetheless, South Florida has outperformed the rest of the country when it comes to commercial property. Does that render South Florida largely immune to broader trends at play across the country?

Commercial Bankruptcies Increase in 2023

Another leading economic indicator is the overall number of bankruptcies filed in the fiscal year. In 2023, the total number of bankruptcies filed (both consumer and commercial) rose 16.8 percent with significant increases in business bankruptcies. After more than a decade of sharp declines, 2023 saw an uptick in the number of commercial bankruptcies filed across the United States.

According to statistics released by the Administrative Office of the U.S. Courts, annual bankruptcy filings totaled 452,990 as of December of 2023. This is compared against 387,721 cases filed the previous year.

Business filings specifically rose 40.4 percent from 13,481 to 18,926 in 2023. Bankruptcy totals for the previous 12 months are reported four times annually. This marks the fourth straight quarter that bankruptcy filings have risen following more than a decade of decline. Bankruptcies fell dramatically during the COVID pandemic but have since seen increases. Despite recent increases in the overall number of bankruptcies, the newest totals are still far lower than December 2010 when filings reached a zenith at 1.6 million.

Talk to a South Florida Commercial Foreclosure Defense Attorney Today

Loan Lawyers, LLC helps Florida businesses deal with and potentially avoid a foreclosure action filed by their lender. If your business is facing an imminent foreclosure, call our Florida commercial foreclosure defense lawyer today to schedule an appointment. We have helped thousands of South Florida residents and businesses avoid foreclosure, negotiate a modification of their loan, or avoid the crippling impact of a negative enforcement action on their credit.