Foreclosure Properties in Massachusetts’ Commercial Sector

Massachusetts has not been battered by foreclosed homes as badly as California, Nevada and Arizona, but it is now being battered by foreclosure properties in the commercial sector.

In the first months of this year, auctioneers have reported a rising number of foreclosed hotels, office towers and stores as owners failed to make payments or refinanced their large loans.

Several of the more recent foreclosure properties were the Art Deco park building in Boston, the Glen Ellen golf course in Millis, the Boston Yacht Haven in Boston and the Nantasket Beach Inn. Scheduled for auction are industrial facilities in Central Massachusetts and a condo and garage facility in Charlestown.

Justin Manning, head of JJ Manning Auctioneers, said he is suddenly deluged with substantial foreclosure properties for auction.

Commercial real estate analysts explain that former owners of foreclosure properties in the commercial sector failed to make payments largely because of the recession. They said many tenants closed their operations, cutting rental income. The others could not refinance because real estate values have fallen or lenders would not extend them credit.

It is expected that foreclosure properties would soon affect local governments as the number of taxpaying malls, stores, buildings and other businesses fall rapidly.

Andrew Glincher, managing partner and real estate lawyer at Nixon Peabody, said his clients in the lending business have informed him of ten defaults that could become foreclosure properties.

There have been prominent foreclosure properties in Boston recently. The Hancock Tower was sold in March for $660.6 million, around 50 percent of its $1.3 billion purchase price in 2006. The nearby 441 Stuart building will be sold next week after the owners failed to pursue their plan of turning their $37.5 million investment in the building into income-earning condos.

Real estate research company Reis Inc. said that more foreclosure properties in Massachusetts are expected in the commercial sector as more mortgage loans become collectible. Commercial building owners are due to pay over $1.5 trillion in payments to their mortgage lenders between this year and 2012.

In Boston, about $385 million securitized loans will need to be paid this year and $1.9 billion will become due next year. Securitized loans are more problematic for borrowers because these loans cannot be refinanced.

Auctioneer Manning said he has auctioned 11 foreclosure properties this first quarter, a big increase from the 6 foreclosure properties sale he handled last year.

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