Commercial Foreclosures Surge: The Need for Precision in a Changing Market

Despite optimism and growth in the lending sector, a significant challenge is emerging: a large number of commercial loans are coming due, and landlords must exercise extreme precision in their financial planning. Retail brands, too, need to be cautious, ensuring they have confidence in their landlords' ability to maintain ownership over the coming years.

Commercial foreclosures have more than doubled in March 2024, according to real estate data specialist Attom. The report highlights 625 foreclosures across the U.S., representing a 6% increase from the previous month and a staggering 117% increase from March 2023. This marks a concerning trend that has been building steadily since the onset of the pandemic, with foreclosure numbers rising from just 141 in May 2020. The situation now approaches levels last seen in October 2014, when foreclosures peaked at 889.

California leads the nation in commercial foreclosures, recording 187 in March alone. While this figure represents an 8% decrease from February, it's still a dramatic 405% increase compared to a year earlier. Texas and Florida also saw significant surges, with Texas reporting a 31% month-over-month increase and a 129% year-over-year rise, while Florida experienced a 30% monthly uptick and a 107% increase from last year.

According to the Mortgage Bankers Association, the delinquency rate for mortgages backed by commercial properties remained stable in the first quarter of 2024, holding at 3.2%. This figure includes loans that are over 30 days late or classified as real estate-owned. Office properties are particularly at risk, with delinquency rates climbing to 6.8% in Q1. Hospitality-backed loans also saw an increase, rising to 6.3%, while delinquent retail-backed loans improved slightly, decreasing from 5% at the end of 2023 to 4.7% in Q1.

This surge in foreclosures highlights the critical need for both landlords and retail brands to exercise caution and due diligence. As a significant number of commercial loans come due, property owners must ensure they have the financial stability to weather this challenging period. Retail brands, in turn, need to scrutinize their potential landlords carefully, ensuring they can trust that the properties they lease today will remain under stable ownership in the coming years.

At CenterCheck, we believe that despite the growth and optimism in the lending sector, the surge in commercial foreclosures serves as a stark reminder of the importance of careful planning and financial precision. Both landlords and tenants must navigate this uncertain landscape with heightened awareness to avoid becoming part of these alarming statistics.