Commercial Real Estate Foreclosures are on the Rise

Nearly 1 in 10 commercial real estate loan holders are at risk of default this coming year. Financial institutions are on high alert amidst the continuing uncertainty of the market. The increase in loan defaults is causing lenders to take action to protect their assets and send foreclosure notices. In January of 2024 there were 635 commercial real estate related foreclosures reported, an increase of 97% from the 322 foreclosures occurring in January 2023. With over $900 billion of outstanding commercial mortgages set to mature in 2024, the increased amount in foreclosures is likely to continue throughout the year.

The most at-risk property type for foreclosure is office buildings. As vacancy rates remain at record highs, over 40% of office properties are at risk of immediate default. Several buildings have the opportunity to be repurposed or converted into more in demand property types such as apartments, data centers, or recreational sports facilities. On the contrary, buildings that cannot find new tenants or be converted and would otherwise be sitting empty have a high likelihood of being demolished in the future.

Although the market is full of doom and gloom currently, as the saying goes, things may need to get worse before they can get better. There is estimated to be over $400 billion of private equity funds that have yet to be invested in the commercial real estate market. With the influx of foreclosures and properties expected to be sold at a heavily discounted rate, it may be the dry powder’s time to shine. Freeing the market of unsalvageable properties may lead to more flourishing opportunities for investors. Those willing to adapt to the current market trends and take risks may reap big rewards.

Knowing the current valuation of a property is one of the most important factors when deciding how to use investment funds. LPA is equipped with an experienced team to meet your commercial real estate appraisal needs. Our in-depth and comprehensive research allows us to ensure our clients will have the most accurate valuation reports to make informed investment decisions, and we stand by our reputation for on-time delivery. Contact us today for any of your commercial real estate valuation needs.

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