While commercial foreclosures, like a 58-lot development in Fountain that sold last week, have slowed, they are not moving off bankers’ books quickly.
El Paso County Trustee Thomas Mowle said he’s noticed the number of neighborhood and vacant lot developments going into foreclosure decline in recent months.
“In general, I would say they are becoming less common because a lot of them already went into foreclosure in ‘09 and 2010,” Mowle said. “There were a lot of these then.”
While they have slowed, he said they haven’t stopped altogether and those that have gone into foreclosure recently have tended to be pricier than earlier ones.
The Rustic Hills shopping mall is scheduled to go to foreclosure sale Aug. 31 with an outstanding loan balance of $19.6 million, according to the trustee’s online data. The Crown Hill shopping mall, with a loan balance of $6.4 million, is scheduled for sale in early August.
Mike Suggs, a broker associate at NAI Highland Commercial who handles mostly subdivision and development foreclosure listings, said he has also noticed the number of new subdivision foreclosures decline. It’s not a mystery to him. It’s what he expected to see.
“Most of the residential developers in this area have already gone through that cycle,” Suggs said of foreclosure. “Now we’re just waiting. We’re waiting for banks to lower their asking prices or for demand to return.”
Suggs explained that permitting for new developments peaked in 2006 and 2007.
The Colorado Springs Land Use Review department received 156 applications for new subdivision plats through its committee and the city planning commission in 2006 and another 150 in 2007. It received only 40 applications in 2010, according to its online data center. There have been 18 plat applications so far in 2011.
“Tons of developers took out huge amounts of debt in 2006 and 2007,” Suggs said.
As distressed developers saw other properties going into foreclosure, they called on banks to finance their purchases of finished lots, Suggs said. They borrowed more money to develop those finished lots. Now the majority of the foreclosure inventory is platted, undeveloped land, Suggs said.
In most of the cases Suggs has seen, and he said his firm handles more of these subdivision foreclosures than anyone else in town, a developer was able to get through the first phase or two of the development before losing the property just as he was about to break ground on the next filing.
That’s more or less what happened to the development in Fountain that sold back to the lender last week.
Fountain Valley Land and Irrigation Company Subdivision No. 1, better known as the second phase of the Countryside North development in Fountain, sold at foreclosure auction to Hillcrest Bank, which held the original loan, on June 1.
The subdivision holds 58 vacant lots with road, water and electric infrastructure already in place, said Jane Fredman, an attorney who handled the foreclosure.
It was the ninth property Morley Companies Family Development has had in foreclosure since Sept., 2009, according to documents on the El Paso County Trustees website. The $1.5 million foreclosure was the starting bid and more than $300,000 short of what Morley owed the lender, according to trustee filings. The original loan, issued in 2005, was $4.4 million. That principal balance was just over $1.8 million.
Nearly all of the company’s nine foreclosures have been on developments and subdivisions with remaining loan balances near or over $1 million.
It’s been hard for banks to offload properties like this, Suggs said.
“The note the bank foreclosed on is significantly higher than investors and developers are willing to pay,” Suggs said. “Banks have not lowered or been willing to lower to a number the property will actually trade at.”
The inventory of finished lots has slowly been bought up and all that remains on the market are unfinished plots of vacant land, Suggs said.
“What’s happening is nothing is happening,” he said. “We’ve got bank-owned listings that are usually based on an appraisal because that’s how banks do it. And they continue to hold them on their books.”
He said big subdivision foreclosures have slowed and now the market is just waiting for banks to lower prices or for demand to rebound. Part of the problem is that there is not demand for new housing. As residential foreclosures continue and existing home sales remain sluggish, there is no drive for developers to get back into the show.
“There’s still a significant divide between the bidder and the lender,” Suggs said. “It is getting better though. It’s moved both ways.”