Overbuilding Drives Commercial Foreclosures in Phoenix

Just as overbuilding has been driving foreclosures in the condo market in many cities across the nation, overbuilding has also been driving distressed commercial foreclosures in Phoenix.

In the office condo market, many large-scale projects have been stopped due to lack of sales while finished buildings have been foreclosed due to high vacancy rates.

Across the Valley, according to CoStar Group, over 330 office condo projects are being constructed with no certainty of sales.

Analyst Andrew Cheney of Lee & Associates said more office condo buildings in Phoenix will be repossessed by the banks in the coming months, as Phoenix will not be able to absorb the oversupply.

Saxa CEO Jim Riggs, who claims to have launched the office condo concept in Phoenix, said the office condo sector in Arizona has been a booming sector in the past 5 years, but admitted that the sector is struggling now due to overbuilding. He said it will take four years to sell the city’s current office condo inventory, and more are being added as the processes of trustee auctions and foreclosures are being completed.

According to analysts, the main reason for commercial foreclosures in the retail real estate sector is the closure of retail businesses, including the branches of large retail chains. The rising unemployment rate is the root cause, as joblessness pushes down consumer spending and consumer confidence.

Among the commercial buildings that are in different stages of financial difficulties and foreclosures is Pinal UTAZ Professional Village being developed by Utaz Development Corp. Its first phase has been completed, while its second phase has not started.

Other commercial projects facing foreclosures are the office and retail buildings developed by Opus West, which has just filed for bankruptcy. Its office complex Glendale Corporate Center near the University of Phoenix Stadium was foreclosed by its lender Bank of the West in May after it failed to pay almost $31 million in construction loans.

Its Tempe Gateway office and retail project also faces financial difficulty as it has only found one retail tenant.

Phoenix-based Opus is also facing a $160 million lawsuit from a bank consortium led by Bank of America for its failure to pay the loan it used to build Hill Country Galleria shopping center in Texas.

Steve Pritulsky of Southwest Resolution Advisors said the prices of commercial properties have been declining by around 35 percent as commercial foreclosures rise and as banks face difficulties in finding investors to acquire the foreclosed buildings.

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