(Read more on the debt and equity markets.)

IRVINE, CA-Foreclosure filings that have roiled the financial markets in recent months continue to contribute to uncertainty, with the number of filings dropping slightly on a monthly basis but nearly doubling from last year in the latest report from RealtyTrac. The company, which tracks residential foreclosures nationwide, issued a report today that shows foreclosures in September declined by 8% from their from the 32-month high in August but still soared by 99% in comparison to September of last year.

The subprime lending problems causing the residential foreclosures have created volatility that has reverberated throughout the commercial lending sector and raised questions about how long the foreclosure numbers will continue to rise. According to James J. Saccacio, CEO of RealtyTrac, the September numbers raise another question: Whether the monthly decline is a trend or a one-time event.

It’s too early to tell if September’s 223,538 nationwide foreclosure filings represent a one-month lull or if they could signify that more buyers and investors are getting back in the market and snatching up discounted foreclosure properties, Saccacio says. He notes, however, that the latest foreclosure figures constitute “a fairly broad-based retreat,” with 39 states reporting decreasing activity and national numbers down in all foreclosure categories: defaults, auctions and bank repossessions.

In spite of that broad-based decline, the September foreclosure total was still the second highest monthly total since RealtyTrac began issuing its monthly report in January of 2005. As RealtyTrac marketing VP Rick Sharga told GlobeSt.com recently, the residential foreclosure picture could get worse before it gets better because of the large number of risky adjustable loans that are coming due this fall.

The impact of the residential foreclosures and the subprime lending industry on commercial real estate finance has drawn the attention of commercial property lenders, investors and mortgage brokers as never before, prompting reports like a recently published Jones Lang LaSalle outlook on the CMBS market. The JLL outlook reflected the view, shared by many in the industry, that the commercial real estate fundamentals remain strong in the US, pointing out that delinquency and foreclosure rates on US commercial mortgage loans remain at historic lows.

But the fallout from the residential side has nonetheless taken its toll on the US commercial mortgage market in the form of rising spreads and other changes in the capital markets, JLL and others note. Los Angeles-based mortgage banking firm George Smith Partners, for example, recently issued a report commenting on the implications of the foreclosures and related subprime lending industry woes.

In addition to the meltdown in subprime residential markets and the lack of activity among bond investors, CMBS lenders’ inability to determine their cost of capital has contributed mightily to the uncertainty in the market, according to the report. On the other hand, according to principal and managing director Gary Mozer of George Smith, “Commercial banks may benefit from the unpredictable market conditions” caused by the recent capital markets turmoil.

“As competition from CDOs weakens, banks have raised rates and tightened underwriting, assuming that borrowers will pay for the certainty of execution,” Mozer explains. “The larger banks have plenty of liquidity and should steal market share from their competitors.”

The impact on commercial banks is just one of a number of points raised by the George Smith Partners report, which notes that lenders having difficulty selling bonds in CMBS pools have no way of calculating their cost of capital and that a lack of liquidity in the CDO, or collateralized debt obligation market, is also a key concern.

While capital remains expensive across the board, George Smith Partners still sees opportunities for financing. Bridge and construction financing is relatively plentiful as balance sheet lenders take back market share, Mozer says, although he expects upward pressure on cap rates as high-leverage, cheap financing becomes scarce.

Mozer adds, too, that financing depends on the borrowers as well as the lenders. “Investors with proven expertise and strong lender relationships can still find great opportunity amidst the current climate of uncertainty,” the GSP principal says.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

GlobeSt Net Lease Spring 2024Event

This conference brings together the industry's most influential & knowledgeable real estate executives from the net lease sector.

Get More Information


Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2024 ALM Global, LLC. All Rights Reserved.