The proverbial sirens started wailing during 2007, warning of the pending collapse of the Northern Colorado housing market. The number of home mortgage failures was rising so fast that the public trustees in northern counties could hardly keep up with them, reaching a crescendo in fall 2008 and signaling the worst economic crash since the Great Depression.
But even as the housing market now shows signs of recovery, a new crisis is unfolding, according to national media reports. The Wall Street Journal, the Washington Post and other prominent outlets have said commercial real estate foreclosures will be the next big wave, driven by business failures that leave owners and brokers holding properties without a drop of cash flow.
“That’s certainly been the theme in the national press,” said Harry Devereaux, president of Home State Bank, the largest locally owned bank in Larimer County. “It’s the next crisis. It’s the next bubble. On a national basis, very possibly it is. ...We’re not in the same shape here, though.”
If not for a handful of high-profile loan failures — the most prominent is The Promenade Shops at Centerra in east Loveland — the commercial foreclosure problem would not attract much attention in Northern Colorado, where foreclosure rates are far lower than in Sun Belt states such as Nevada, Arizona and Florida.
Still, records kept by the Larimer County public trustee, whose office processes all residential and commercial foreclosures from beginning to end, show a steep rise in the number of commercial foreclosure filings.
They are not easy to identify during the process of poring through the 2,091 foreclosure filings that public trustee Deborah Morgan processed in 2009. “We don’t separate residential and commercial properties,” Morgan said. “There’s no particular reason for us to do that.”
Big Dollars
Some records pop out, if only because dollar amounts representing indebtedness overflow the space allotted on the forms. Others bear corporate entity tags such as “LLC” or “Inc.” The largest recent filing was in mid-November against Centerra Lifestyle Center LLC, the corporate holder of The Promenade Shops controlled by Tennessee developer Poag & McEwen Lifestyle Centers Inc.
The $113 million foreclosure is scheduled for auction sale March 17 in the lobby of the Rocky Mountain Building at Oak Street and Canyon Avenue in Fort Collins, where Morgan has her office. A distant second is the $32 million filing against Los Angeles-based Integrated Capital LLC, the owner of three Marriott-branded hotel properties in Fort Collins including the Marriott Fort Collins hotel and conference center at 350 E. Horsetooth Road.
Auction sale of those properties, following four date changes, is set for Wednesday.But the region’s second-largest shopping center and second-largest hotel are anomalies among commercial properties that have fallen into foreclosure.
Most of the filings are for vacant tracts of land, sad emblems of a decade-long residential and business building boom that came to an abrupt halt with the October 2008 national credit collapse.
Trouble with Land
“There just isn’t that much of a (foreclosure) problem with improved real estate as there is with land,” said Mark Driscoll, president of First National Bank. “Land is the riskiest kind of investment and the most risky kind of development.” The Florida investors who bought 42 acres of land on the northwest corner of Eisenhower Boulevard and Boyd Lake Avenue know that lesson. After a fast start, selling 7 acres of the project to Orthopaedic Center of the Rockies for the practice’s new Loveland location, they hit the economic wall. First National Bank filed notice of foreclosure in December, seeking $8.8 million owed on Boyd Lake Village LLC’s $11.35 million loan. Driscoll wouldn’t comment on the foreclosure action.
“We just can’t violate the privacy of a specific customer relationship,” he said. But Loveland broker/developer Kirk Dando, who marketed Boyd Lake Village, said the project still is viable, even in the current downturn. “They’ve got real contracts for real dollar amounts, but because of the foreclosure status I can’t talk about any of it,” Dando said. “It’s part of the life cycle of business, and unfortunately it’s one of the worst parts.”
Office, retail and industrial property owners, with vacancy rates climbing steeply during the past two years, are in fire-sale mode in some quarters, said Michael Ehler, managing broker of Realtec Commercial Real Estate Services, the region’s largest commercial brokerage.
Despite the bleak business climate, Ehler has had success with the 57,000-square-foot Preston Center office development on Harmony Road in Fort Collins — but only after slashing lease rates. Before the crash, prime office space on Harmony Road was leasing for $20 per square foot or more. “A lot of people are at their wits’ end trying to hold things together,” Ehler said. “We’re doing leases for $10 per square foot. It’s like we’ve traveled back 15 years.”
Community banks ask for more flexibility Rep. Betsy Markey, D-Colo., said Friday she would be all ears during a meeting with Northern Colorado’s community bankers to talk about the lending crunch that threatens to raise the region’s number of commercial loan failures.
“I’ll be there to listen,” Markey said as she was en route to the meeting late Friday. “I just want to hear from them, and to talk about what some of their issues are as we’re moving forward with this economy.”
Markey said she had joined forces with Reps. Ed Perlmutter, D-Colo.,
and Mike Coffman, R-Colo., in pressing for bipartisan legislation that
would give banks more leeway in balancing their capital assets and loan
portfolios.
“The resolution that I signed on to calls for regulators to use forbearance with the community banks, giving them a little more flexibility,” Markey said. “You don’t want to have the pendulum swing too much to the other side, and have too much regulation. Banks now have these very stringent requirements on how much capital they have to have in order to get their lending going again.”
The meeting at Bank of Choice’s Fort Collins branch was organized by Bank of Choice President Darrell McAllister, who invited chief executives of the region’s community banks to attend. Home State Bank President Harry Devereaux said he hoped to talk to Markey about a pitch that the Colorado Independent Bankers Association would make to Colorado’s U.S. Senate delegation, calling for legislation to allow banks to amortize commercial loan losses over a 10-year period, rather than in the year they are incurred. “It would take a lot of pressure off the banks,” he said. “Over a reasonable period of time, people could move their collateral and their assets and put them to work. Betsy understands that community banks are the way out of this, that they’re the source of the solution.”
By Tom Hacker
Loveland Reporter-Herald
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