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Thursday, 21 June 2012 14:21

The Price is Right: Rogers Plaza sale indicative of banks moving foreclosed properties

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The Price is Right: Rogers Plaza sale indicative of banks moving foreclosed properties Courtesy photo
WEST MICHIGAN — At more than 365,000-square-foot and occupying 35 acres along one of the region's busiest commercial corridors, the Rogers Plaza Town Center sat on the market for some time until a Texas investor bought it this month. 

The sale of the foreclosed property along 28th Street in Wyoming to Sun Valley Ltd. from Citizens Bank and U.S. Bank reflects an improved marketplace that has led to increased interest in and movement of commercial real estate that banks acquired during the recession through foreclosure or repossession.

Interest in foreclosed and repossessed properties picked up late last year and continued into 2012, said Robert Kaminski, chief operating officer of Mercantile Bank in Grand Rapids.

While there remains a "vast oversupply" of foreclosed commercial real estate on the market and "we still have a long ways to go" in terms of values, "we're all encouraged by what's out there right now," Kaminski said.

"We have seen things improve. There's some velocity now," he said. "Properties where we haven't seen any activity for a good length of time are starting to see some interest."

At the same time, the incoming level of foreclosures "has slowed down considerably," he said.

Industrial properties are receiving the most interest from prospective buyers. Office and retail parcels are still struggling in values, Kaminski said.

"But even with that there have been some offers, there's been some velocity," he said.

Key to moving the foreclosed and repossessed property is making sure they are "valued appropriately and valued properly for what the market can bear," and not based on what the bank was owed on the property, Kaminski said. An improved real estate market enables banks to sell at a more appropriate price than two or three years ago and recover more of their losses.

"We're very realistic over the years about what we think the values are in the current market situation, and as the markets picked up and started to gain some momentum, it served us very well," he said. "The prices are still a lot lower than all of us would wish at this point, but we're seeing some velocity where we hadn't seen that in a few years."

That momentum is seen in Mercantile Bank's quarterly financial report filed with federal securities regulators. The bank listed foreclosed assets of $13.5 million at the end of the first quarter, down from $15.2 million three months earlier.

The present environment compares to the height of the recession a few years ago when the bank would acquire a property after going through the repossession or foreclosure process, set the value and price accordingly, put it on the market, "and then you'd hear crickets," Kaminski said.

"There was just no velocity at all to speak of," he said.

The lack of activity resulted in the level of foreclosed assets building up as banks "were just sitting on" properties and bad loans grew at an accelerating rate.

An improved market that improves values and the ability of banks to dispose of foreclosed properties will benefit banks' bottom lines and reduce or eliminate a "huge" non-interest expense, said Rob Bondy, senior manager of Plante Moran PLLC's Financial Institutions Group in Grand Rapids. It also cuts their losses on those properties.

Macatawa Bank, for example, reduced losses on foreclosed real estate to $1.5 million in the first quarter of 2012, versus $2.4 million a year earlier, according to a quarterly financial filing. Macatawa also had reduced legal fees and administration costs connected to foreclosed real estate.

"As our level of problem loans and other real estate owned decreases, we believe we will experience meaningful reductions in these costs," the bank stated in its quarterly financial report to the U.S. Securities and Exchange Commission.

Macatawa Bank had $66.2 million in foreclosed assets at the end of the first quarter, down slightly from $66.4 million at the end of the fourth quarter. The bank holds a foreclosed property an average of 1.4 years, according to the financial report.

Perhaps just as important as the financial cost is the time and energy banks have had to put into managing their foreclosed assets, Bondy said. As they begin to dispose foreclosed assets, bankers can now spend more time on business development, pursuing loan growth and acquiring new customers, he said.

"Banks have really started to fill the holes they were in the last few years," Bondy said. "That time and energy can now be more strategic."

The interest in foreclosed or repossessed properties that banks hold comes from both business owners seeking to expand and investors looking for a good deal, said Drew Miller, managing partner of the Grand Rapids office of CB Richard Ellis that moved the Rogers Plaza site.

Manufacturers that have rebounded well coming out of the recession are showing an interest in bank-owned properties, said Miller, who works with a number of banks in the area to list and sell their foreclosed properties.

"There's a strong need to expand, so they're taking advantage of some of the product that's out there," Miller said.

But that doesn't mean banks are going to let the properties go cheap.

Setting the right price and value on a foreclosed or repossessed property is a balancing act that considers current market demand, mitigating the bank's losses and getting the appropriate value for it, Kaminski said.

"We want to keep driving it down and get rid of these properties," he said. But, "Obviously, as a corporate value, you don't just want to blast it out just to get rid of it for the sake of getting rid of it. You want to actualize the value."

Read 1941 times Last modified on Sunday, 29 July 2012 22:44

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