America’s fifth-largest city is a hot location for investors (and we’re not only talking about the weather). Thanks to the region’s affordable cost of living, steady population growth, and accommodating startup environment (there are low overhead costs, with an abundance of creditors and angel investors), there are plenty of investment opportunities for lenders to seize upon, especially in multi-family housing and industrial properties.
Like any real estate market, there are some risks lenders should know. Total Lender Solutions (TLS) analyzed the most recent commercial foreclosures in Phoenix to identify foreclosure trends that could help lenders maximize their investments.
Let’s summarize what we learned in our analysis.
Phoenix Commercial Foreclosures by the Numbers
Using PropertyRadar®, we examined all of the Phoenix commercial foreclosures entering April 2024. Here are the key data points:
- There were 96 commercial foreclosures in the Phoenix metropolitan area
- Most of the commercial foreclosures were in Phoenix (60) and Mesa (19), with the rest scattered among the neighboring cities
- Downtown Phoenix had the highest concentration of commercial foreclosures
- Most of the foreclosed properties were office / retail buildings and developments involving construction
Let’s break down these insights in more detail.
Retail & Office Space Foreclosures in Phoenix
In the Phoenix metro, the costliest foreclosures were office buildings and retail spaces. There were two foreclosed office buildings in Downtown Phoenix that were short $3 million and $11 million on their loans, respectively. We found two strip malls that had entered foreclosure, one in Mesa and the other in Apache Junction. In the Phoenix suburbs, we found a building hosting dental offices that had also entered foreclosure.
Office buildings and retail spaces are tricky for lenders because they often can’t generate sufficient revenue with low occupancy or unprofitable tenants.
“The borrower’s cash flow can be disrupted if the property has sustained vacancies or if the tenants aren’t earning enough revenue to pay their rent. These situations can cause the borrower to miss their loan payments.”
– Randy Newman, founder and CEO of Total Lender Solutions
We also took notice of a foreclosed office complex in Scottsdale, which is located in a busy area with plenty of retail stores, hotels, and other office buildings. Purchased for $3.5 million, the building foreclosed $850,000 short on its loan.
The property is located in an area that should be desirable for businesses in need of office space, which makes the foreclosure a bit surprising. It’s possible that the borrower struggled to make the balloon payment.
“Commercial loans often have a balloon payment at the end of the loan term. We often encounter borrowers who were profitable enough to pay their installments but didn’t earn enough revenue to make the balloon payment. Sometimes, this can come as a surprise for the lender.”
– Randy Newman
Newman says that even if the borrower has complied with the loan terms, lenders should understand that foreclosure is always possible until the loan is fully repaid.
Non-Monetary Foreclosures in Phoenix
We found a few foreclosed properties in Phoenix that were likely non-monetary foreclosures.
A meat store in Phoenix entered foreclosure with a loan balance of just $480. The grantee was a code compliance administrator, which suggests the store might have violated certain building codes or health codes.
A small house, which had been purchased with a construction loan, entered foreclosure in Phoenix. Presumably, the borrower had planned on redeveloping the property, maybe for a multi-family development or something else.
These two properties demonstrate how non-monetary circumstances can sink an investment.
“It’s a common misconception that foreclosures only happen when the borrower stops making loan payments. All sorts of things can trigger foreclosure. For example, if the borrower doesn’t comply with local laws, or if construction goes over-budget, then the borrower is no longer abiding by the loan conditions and the lender can move to begin foreclosure.”
– Randy Newman
Most lenders want to avoid foreclosure, but the violation of loan conditions may provide an early signal that the borrower won’t be able to complete the loan. In that case, immediately starting a foreclosure might be the fastest and most risk-averse option available.
Dealing with a Commercial Foreclosure in Phoenix? TLS Can Help
If you need to issue a notice of default or if your borrower has missed payments, contact Total Lender Solutions for assistance.
We handle commercial foreclosures in Phoenix and the rest of Arizona, and can manage your foreclosure processing. Whether you want to pursue foreclosure, plan a UCC sale, or reach an amicable agreement with your borrower, TLS will be there to provide legal guidance and take care of the tedious administrative work.
We have decades of experience helping lenders achieve best-outcome results on a variety of different commercial property foreclosures, spanning many different loan types. We’re happy to help both lending institutions and individual lenders.
