Why aren't there more commercial forclosures?

Several clients looking to purchase commercial properties have asked me; "Why don't we see more commercial forclosed properties on the market for sale? Those of us involved in commercial real estate know that there are a number of commercial properties, especially in retail, that are no longer supporting the mortgage. Yet, these properties don't seem to be coming on the market. "


My answer is that at this time, banks don't have the management in place to handle properties if they foreclose on them. Putting management in place is expensive so they really don't want to take properties back. The banks would rather just sell the note at a discount and let someone else restructure the loan with the owner or foreclose on the owner if they can't work things out. If the new note buyer obtains the note at a discount, there is more financial ability to rewrite the note at a lower monthly payment, which the owner can hopefully afford. This will avoid the foreclose.


Eventually, if the number of foreclosures increase enough, which is probably what is going to happen to many banks, the banks will need to hire REO staff and take the properties back. When this happens, you will see these properties going on the market for sale.