Commercial real estate foreclosures jumped almost 50% in September, report says

Commercial real estate foreclosures jumped on a monthly and year-over-year basis in September, according to real estate data and analytics firm ATTOM.

Commercial foreclosures rose 48% year-over-year in September. There were 695 foreclosures nationally, a report from ATTOM said. That’s slightly lower than where commercial foreclosures peaked earlier this year, but marked a 15% increase from the prior month, the report said.

“Starting in June 2023, foreclosure numbers saw a sharp increase, peaking at 752 in May 2024, before settling at 695 in ATTOM’s most recent data for September 2024. This recent surge suggests renewed financial stress or changes in commercial real estate dynamics,” the firm said in a note this week.

Commercial foreclosures saw the biggest year-over-year increase in California, with foreclosures on commercial buildings soaring 238% from the same time last year. In New York, foreclosures rose 48% year-over-year, while in Florida, foreclosures rose 49% year-over-year.

The delinquency rate for commercial mortgages also rose slightly in the third quarter, with the percentage of loans that were 60-90 days late rising to 0.3%, and the percentage of loans that were at least 90 days late rising to 2.7%, according to the Mortgage Bankers Association. Outstanding loan balances that were less than 30 days late, meanwhile, fell slightly but remained elevated at 96.8%.

Commercial real estate prices for the US dropped 9% year-per-year in the first quarter, according to International Monetary Fund data.

Real estate experts have been warning of more distress to come for commercial real estate, particularly in the office segment. Demand for second-tier office buildings has fallen since the pandemic, leading some to forecast a wave of forced sales and defaults as debt continues to mature in the sector.

Some property experts have speculated that the sale of unused office space could result in a wave of conversions to apartments, solving an issue for office owners and helping to add supply to a constrained housing market. However, such overhauls are difficult and costly for landlords.

Meanwhile, other more optimistic forecasts see a rebound coming for the commercial real estate market. A Moody’s analysis found that transactions in the space had already bottomed, with sales volume rising for the first time in two years in September.