Property Prices Drop, Surge in Bank Foreclosure Expected

by Simon Lindsay on Foreclosure Crisis

The increase in the number of bank foreclosure is looming as commercial properties registered a drastic decline in values. Real estate experts are concerned that the almost 30 percent dropped in commercial property values will leave landlords with mortgages more than the worth of their properties.

Most of these commercial properties that saw a drastic drop in values were purchased at the peak of the real estate market. According to real estate experts, some of the commercial properties that went into bank foreclosure are just a fraction of the upcoming foreclosures.

Jones Land LaSalle Senior Vice President James Koury explained that the second onslaught of foreclosure will not take place until after several years. He said that majority of mortgage loans taken out from 2005 to 2007 are scheduled to mature in six or seven years.

Most owners of commercial properties who have loans that are bigger than the values of their properties have been trying to negotiate with lending institutions to extend terms to allow them to find ways to avoid bank foreclosure.

Sherin and Lodgen LLP partner Gary Markoff said that most property owners regard foreclosure as a last resort. He added that those who are severely affected by the drastic drop in commercial property values are developers who purchased condominium projects and are having difficulty selling the units.

This is what happened with Biscayne Bay Lofts' Onyx on the Bay condominium tower in Miami, Florida. Lender Corus Bank filed foreclosure on 41 unsold units of Onyx. Since 2007, Onyx was only able to sell about two-thirds of its units.

Markoff observed that the real estate market is under anticipation of the second attack of foreclosures and commercial property sale.

Last March, the John Hancock Tower was put on bank foreclosure auction block for $660 million, less than half of the total amount paid by its owners in 2006. Also, the Back Bay 11-story building in Boston, Massachusetts was put on auction but was repurchased by Corus Bank for $17 million.

On the other hand, Richards Barry Joyce and Partners LLC executive vice president Frank Petz believed that banks will terminate mortgage loans before it expire or reach their maturation dates. This is because property owners default on their mortgage payments before the maturity of their loans.