Pace of foreclosures about triple that of 2008

Short sales and foreclosures, once the domain of failed home-flipping investments, are increasingly showing up in Lee County’s commercial real estate market.

We’re starting to see a lot of them show up, said Jeff Tumbarello, director of the Southwest Florida Real Estate Investment Association, which tracks foreclosures in the county.

In 2008, foreclosure actions were filed by the mortgage holders on 23 warehouses, one mixed-use building, 10 stores, 14 restaurants, two service stations, 16 shopping centers, 26 office buildings, two nightclubs and three motels, he said.

So far this year, Tumbarello said, the pace is about triple that of 2008’s. His research so far shows that the upswing in commercial foreclosures is about 18 months behind residential ones. Those numbers started to explode about two years ago as an aftershock of the housing market collapse that started in early 2006.

The amount of money involved in a commercial foreclosure can be jaw-dropping.

In the biggest one in county history, for example, the old Lochmoor Country Club in North Fort Myers was taken back two months ago by lender Marshall Investments Corp.

Marshall was owed $94 million for the mortgage, interest and fees by the developer, Paradise Preserve LLC, which had hoped to build a $22 million golf course with a revamped marina and three 26-story condominiums.

The county, with its economy based on the boom-bust real estate business, has always had such spectacular failures, but now they’re becoming an everyday feature of the industry.

One example is the 34 acres of commercially zoned property alongside the Coral Lakes residential subdivision in Cape Coral. Mortgaged for a total of $4,650,000, the property is the subject of a foreclosure lawsuit filed by second-mortgage holder Don Derzavis of Fort Myers Beach against owner Robert Gerrero.

Stan Stouder, a partner with CB Richard Ellis, Fort Myers-Naples, is trying to pick up the pieces with a short sale — the lenders would have to agree to any deal for less than what’s owed on the property.

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Stouder thinks that amount could well be more than the amount owed. The market value is $7 million.

That’s a far cry from the price it would have commanded in the glory days of commercial real estate. The owner turned down an offer in 2007 for a click under $12 million, Stouder said.

Derzavis said he’s an optimist about the property. Personally I think the market’s on a rebound. I think were at the bottom right now.

Still, he notes ruefully that if the property had been sold in 2007, he could have locked in a 5 percent interest rate on the $1.8 million he would have received.

Stouder said he expects short sales to increase because they’re appealing to lenders. It often costs more money to take the asset back and maintain it until if and when you can find a buyer, than to let the mortgagor remain in possession for the time being. Then you at least have somebody mowing the grass, keeping the electricity.

As the foreclosures and short sales pile up, sellers will face a tough real estate market in which residential and commercial construction has all but stopped in the county.

But Stouder said investors with the deep pockets to wait for a comeback can do well: The biggest opportunity for a windfall is buying vacant land because it’s in the most disfavor.

The Coral Lakes land, for example, is already zoned and with a development order — the new owner could go in and the day they closed put in for a building permit.

Others are more cautious about the land market.

Fort Myers-based commercial real estate broker Jim Simon of The Simon Group, for example, said he wouldn’t recommend buying land at all because there’s so much excess commercial development already built.

Even buying a building, he said, doesn’t make sense except at a fire sale price. It’s got to be a steal.

His rule of thumb: pay no more than 60 percent of what it would cost to put up the building and don’t even consider the value of the land.

Look at the vacancy rates, Simon said. It’s more than likely you’re going to have a vacancy until the economy turns around.

Ed Bonkowski, a Fort Myers-based commercial real estate broker, said even at extremely low prices it would be hard for most investors to hold onto a major commercial development for long.

If you did buy a (vacant) shopping center, it still costs $5 to $7 a square foot (annually) to hold it, he said. And we don’t know where the tenant base is coming from. People are going out of business left and right.

Bonkowski said he expects the bigger projects to be bundled into larger packages by the lenders and sold to big investors.

There are buyers out there, he said. There’s a lot of money on the sidelines.