Voit Real Estate Services' John Strockis

Trickle or Torrent? That is the question. From recent conversations with industry insiders on the subject, there seems to be two distinct camps currently forming: Those that believe we are on the cusp of a huge commercial real estate liquidation, and those who say that the market will work itself out and that the numbers of distressed assets actually trading hands will be modest. GlobeSt.com asked readers in last week’s Quick Poll that exact question, and out of 353 respondents, 37% said there will be a trickle, while 63% expect a flood of commercial foreclosures. John Strockis, executive managing director of asset services at Voit Real Estate Services, says the answer is mixed and took just a quick moment to provide a little more thought on the topic.

“Recent data suggests that the long awaited commercial foreclosure ‘momentum’ is starting to build. In 2009, most financial institutions were still finalizing work-out/foreclosure strategies, staffing special asset managers and finally getting their arms around the ever increasing workload of defaulting loans. Coming into 2010, well-capitalized banks that have reserved for loan losses are now ready to move more aggressively towards foreclosure. Due to rapid declines in rental rates and property values, fatigued borrowers are just beginning to accept the new pricing realties and with little hope of rapid recovery until sometime in 2012, they are acting accordingly and starting the process of giving their properties back to the banks.

According to a recent article on the subject, CMBS loan defaults that were at least 30 days late increased to 4% from approximately 1% a year earlier. While this trend may foretell more CMBS foreclosures, be mindful of the many issues special servicers may confront, such as valuation and tranche warfare between bondholders, before a property is taken back. Likely defaulting commercial assets secured by CMBS debt may be subject to a longer timeline from default to workout phase and ultimately take longer to foreclose.