In the past five years, real estate foreclosures have run the gamut from hospitality to retail to multifamily to high-end residential to industrial.
As the commercial market in particular continues to be plagued with record-high vacancies and downward pressure on rental rates, investors are feeling the brunt of the crisis.
Even major players like Chicago-based HSA Commercial Real Estate – which has more than 16 million square feet of property worth more than $2 billion in the U.S. – have been affected.
Case in point: HSA’s 17-building, mixed-use Willow Lake Business Park and Corporate Park in Hickory Hill is headed to foreclosure auction Friday at noon on the steps of the Shelby County Courthouse, 140 Adams Ave.
“I don’t think anyone is immune to what’s been going on in the economy, especially related to real estate the last few years as far as bankruptcies or foreclosures,” said Johnny Lamberson, senior vice president of CB Richard Ellis Memphis who worked on the team that sold the properties to an HSA affiliate in December 2006. “There were a lot of office build-out, service center-oriented businesses that were in that park that have just gone away. A number of things happened; it wasn’t anyone’s fault.”
The foreclosure is being pursued because borrowers of the mixed-use property – listed as five separate Delaware limited liability companies related to HSA – defaulted on a $67 million loan through Countrywide Commercial Real Estate Finance Inc. dated Dec. 28, 2006. That loan was later assigned LaSalle Bank National Association and then to U.S. Bank NA.
Three of HSA’s top executives – Robert E. Smietana, John E. Shaffer and Melissa S. Pielet – are listed as sole members of the various Willow Lake properties on the Shelby County Register of Deeds.
“About the HSA Commercial Memphis properties, the firm really doesn’t want to comment on it,” said Jennifer Harris, director of public relations for Clovis Inc. on behalf of HSA. “I can tell you the goal is to retain the properties and that’s what they’re trying and hoping to do, and that is about all we can say.”
The Willow Lake Business Park and Corporate Park sale ranked as one of the largest sales in the past five years. HSA then continued its industrial acquisition streak with four additional purchases in less than three years, spending close to $75 million on a local portfolio that encompassed about 2.6 million square feet, or 16 percent of its nationwide portfolio.
At the time of the $53 million purchase, the properties were 85 percent leased by 55 tenants, including International Paper, FedEx, Fujitsu, Sears Home Improvement Products, M&M Aerospace, Terminex and NetFlix, according to CoStar Realty Information Inc. The leasing of all buildings, with the exception of the 79,588-square-foot 3696 Knight Road, is handled by Colliers International.
But HSA is fighting an uphill battle with lenders, said Hank Martin, vice president of NAI Saig Co., who handles the marketing and leasing of the building at Knight Road, now occupied by two tenants with about 16,000 square feet of available space.
“All of the properties are very good properties – very well-built, very nicely kept,” Martin said. “They would be good quality buildings that most any tenant would look at in the market. They just are caught up in this cycle that we’re in right now and that’s hard to deal with.”
The office property portion of the portfolio is going to be the hardest to release at its current rates, Martin said. Several of the properties were in payment-in-lieu-of-taxes programs with the Memphis and Shelby County Industrial Development Board with various companies that have either moved out or moved on.
“You’ve got the perfect storm – lenders are very limited in what they’re willing to do in a market that’s occupancy levels are at the lowest they’ve been in many years and rental rates are at rock bottom,” Martin said.
But with a new owner, some of those restrictions could possibly be lifted, helping initiate a new game plan. That’s because foreclosures can sometimes breathe new life into a property thanks to the new owner.
Although no comment was made about any specific foreclosure, Spencer Clift, shareholder with the law firm Baker, Donelson, Bearman, Caldwell & Berkowitz PC and substitute trustee in the matter, said foreclosures can create a new beginning for commercial real estate.
“Sometimes a foreclosure eliminates the doubt as to the stability and ownership of the property and created the new beginning the property needed,” Clift said. “A foreclosure can provide closure to the uncertainty and allowed buyers to have the certainty that the conclusion of the foreclosure generates that did not exist prior to the foreclosure and conclusion of the loan work out process.”
As for Willow Lake, many are confident it will see success again.
“It’s a great product, it’s still one of the best looking industrial parks that we have in the city,” Lamberson said. “It’s a good park, it always has been a good park, it will be a good park again.”