A bad turn for the economy has sent the prices for commercial property to the floor. This has opened up opportunities for investors as lenders and servicers who are disposing of an ever-growing stock of distressed loans and foreclosed properties.

Distressed properties being disposed of by lenders and servicers.

The growing flow brings new owners to buildings that have been struggling with high vacancy and a lack of investment by owners overwhelmed by debt.

Specialists that oversee troubled loans on hundreds of billions in commercial mortgages on behalf of bond investors have sold over $11.5 billion in distressed loans and foreclosed property in the past year. That’s an increase of more than $4.5 billion dollars over the prior year.

Of the loans sold by these special servicers, investors suffered an average of almost 40% loss on loans or property sold this year. So it’s clear that these assets are being shed at large loss.

Although sales of distressed property have occurred throughout the economic recovery, sales of commercial mortgages have typically been dominated by a few banks and the FDIC, which shed assets to large private-equity firms in large stocks.

With many commercial real-estate loans set to mature in 2012, it’s no wonder many property owners unable to pay off mortgages due to a sluggish economy are cutting deals with lenders and servicers to refinance and extend the terms of their loans. However, every month finds billions of dollars of new properties falling into default. This, in fact, is what economists expect to see over the next few years – an ever-increasing volume of loans falling into default.

Buyers are capitalizing on the growing volume of distressed assets being put up for sale. Many foresaw this time during the early part of the downturn and saved money in hopes of buying property at a premium, but it is only now that they are being put on the block.

See also:
Home prices on the decline
Make your home loan an asset not a liability
Arizona new homes between $150k – $200k