South Florida CRE Foreclosures On the Rise

ST. PETERSBURG, FL—The headline says plenty, but there's more to the story in South Florida. After a decline in commercial real estate foreclosures in February, South Florida activity spiked in March, according to data provided by locally based Off-Market Radar. In total, 39 CRE foreclosures above $250,000 were filed in Miami-Dade and Broward counties in March and April. March saw the highest amount of activity with 24 filings, compared to 17 in February. The figure for April—the most recent month for which data was available—dropped again, with 15 reported foreclosures.

Although April's decline sounds positive on the surface, further analysis of the types of foreclosures filed may warrant concern among investors, according to the Radar analysis. Of the 17 February filings, the firm tracked only three above $2 million. Meanwhile, in March, seven foreclosures above $2 million were filed, and April saw seven more.

"We were most surprised by the growing percentage of foreclosures over $2 million within the total filings above $250,000," says Brian McCarthy, VP and co-founder of Radar. "This is surprising because many investors feel the opportunities in distressed assets have largely passed, yet what we may actually be seeing is that the smaller deals have been foreclosed or handed back, leaving only the bigger deals."

What's driving this situation? As McCarthy sees it, it's possible that lenders felt the risk in rushing to foreclose on the larger deals was greater. That's because the sophistication of the equity investors on those assets led to a lower likelihood that the ownership was the source of the problem, but rather, the issue was with the asset or market itself. Therefore, he explains, taking the property back early wouldn't add too much value.

Multifamily assets accounted for the majority of foreclosures above the $2-million mark during March and April. Four assets in South Florida in the month of March alone were foreclosed upon, a record high since Off-Market Radar began tracking transactions in September 2011.

McCarthy isn't looking to define trends from this data, but if numbers like these continue to post, it would indicate that the distressed market has a number of assets still in the pipeline. The opportunity for investors, he notes, is that this pipeline appears to include larger, higher-quality assets, and because asset managers have very few small deals clogging their workflow, they'll be able to make decisions much more quickly and act faster than in the early part of the downturn.