The foreclosures could also create property tax shortages, stripping money from already lean education and social service budgets.
Since 2008, delinquent taxes owed to Montgomery County on properties in the city have risen from $12.5 million to $19.4 million, treasurer spokesman Paul Robinson said. As more commercial properties foreclose, that number will likely rise, he said.
The Ohio Supreme Court announced Thursday, May 20, there have been 24,711 residential and commercial foreclosures this year through March — a 9 percent increase over the same time last year.
How many commercial parcels have been foreclosed on this year is unknown since government agencies do not separate residential and commercial foreclosures. Montgomery County Clerk of Courts Greg Brush said he is going to consult with his staff about doing so.
PNC’s foreclosure filing last week on the Kuhns building came a day before officials with the Greater Downtown Dayton Plan announced a 10-year plan to revitalize downtown with an emphasis on rehabbing empty office space. But there is little the city of Dayton, facing a $6 million budget shortfall this year, can do to help commercial property owners in danger.
“We’ve talked about (the possible commercial foreclosure crisis) and the potential need for working capital programs to support businesses through this,” said Shelley Dickstein, assistant city manager. “Obviously with our own financial crisis we don’t have the resources to put on the table.”
Why is this happening?
Too many offices, too few tenants, competitive pricing and the departure of large companies all are contributing to the troubles in downtown’s office market, industry observers say.
Several downtown properties are struggling with low vacancies, lost tenants, dwindling revenue or problems with lenders. The former Fifth Third Center and Kettering Tower, 40 N. Main St., have court-appointed receivers.
Doug Harnish, principal with Market Metrics, a market analysis firm, said lenders often request the appointment of a receiver, a neutral third party, to handle the finances. Courts commonly grant those requests. He added that building owners often pre-empt this by filing for Chapter 11 bankruptcy protection.
Paul Miller, vice president of sales and leasing for CB Richard Ellis, the receiver for the Kettering Tower, said only a handful of leads are for new entities coming to downtown looking for office space. Most activity is businesses moving between downtown buildings, he said.
The rise in commercial foreclosures was foretold three months ago by Elizabeth Warren, chairwoman of the Congressional Oversight Panel, created to oversee bailouts.
“In commercial mortgages, the borrower makes payment on the interest and a little principal,” she said. “But the loan comes due in three to 10 years and the whole principal must be refinanced. That means the borrower must apply for credit all over again. If the application is turned down, the property is foreclosed. In today’s market, many applications will be turned down.”
Nearly 40 percent of all commercial loans in America are with community or regional banks such as PNC, Warren said. Many of those are short-term and were made during the lending boom of 2006 and 2007 and will be maturing.
Kuhns’ owner Bob Shiffler received his loan from PNC in 2006 and it matured about three months ago, he said.
Behind on the mortgage and strapped for cash from the $4.5 in renovations he’s put in the building, Shiffler said he’s no luck refinancing with PNC.
At least $1.4 trillion in commercial real estate debt nationwide may roll over during the next three years, Warren said. Half of commercial mortgages will be underwater by 2011.
A study by Gem Real Estate, a Dayton-based brokerage firm,, found the vacancy rate for downtown office buildings in the central business district slipped to 29.9 percent in 2009. A year earlier, vacancy rates for the CBD stood at 31.3 percent.
Gem’s study excluded 32-34 N. Main St., the former KeyBank Dayton headquarters, which was closed earlier this year and will go on the auction block in June.
In March the Royal Bank of Scotland filed a civil suit in the county claiming Titan Loan Investment Fund LLP, based in Delaware, defaulted on a $75 million loan and commercial properties at 130 W. Second St., 333 W. First St. and 11 W. Monument Ave. Many of the parcels were already vacant when Titan purchased them out of foreclosure starting in 2007. But the investment group never paid property taxes in the parcels, according to auditor records.
Titan owes the county more than $350,000 in property taxes, according to auditor’s records.
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