Lenders are mostly holding off on D-FW commercial foreclosures

Nearly a year after the pandemic began, hundreds of Dallas-Fort Worth properties are on lenders’ problem loan watch lists.

However, so far only a few have landed on the steps of the courthouse to be sold in foreclosure.

More than 200 D-FW commercial properties financed with mortgage-backed securities are currently being put on the red flag by analysts. And dozens of other properties funded by bank lenders are also being scrutinized for lost income or missed mortgage payments.

For most of the cause for concern properties, owners are still busy paying off debts, but factors such as lower occupancy and falling cash flow have triggered action by lenders.

The list includes Great Wolf Lodge in Grapevine, Mesquite Town East Mall, and the Colonnade office complex in Addison.

The hotel and retail sectors were hardest hit. Hotel revenues in North Texas fell more than 40% last year, and thousands of store fronts are set to go dark due to the pandemic.

However, despite all the negative indicators, fewer commercial properties have fallen into foreclosure or bankruptcy than in previous downturns. More than ever, lenders have been working with home owners to avoid repossession of the property, industry experts say.

“I call it ‘compassionate capitalism,” “said Byron Carlock, partner and national real estate leader at PricewaterhouseCoopers. “Lenders are working very hard to work with borrowers affected by COVID. It can’t last forever, but there is no enormous isolation. “

Hotels have had the biggest negative impact with the pandemic that saw both business and leisure travel cut short.

Nearly two-thirds of the mortgages tracked by analysts at DBRS Morningstar in North Texas are in hotels. High profile properties like Magnolia and Crowne Plaza in downtown Dallas and Worthington in Fort Worth made the list last year despite having forgiven or continued to make payments.

“The COVID recession is different from previous recessions like 2008 and 2009,” said longtime hotel market analyst John Keeling of Texas. “Both lenders and borrowers believe that this is not a permanent requirement and hotels should get back on their feet starting this year and get back to 2019 levels by 2024.”

According to Keeling, many lenders work with hotels to provide loans, receive partial payments, or use reserves to service debt. Securities-backed hotel mortgages are less flexible, but owners are still hoping to avoid foreclosures, he said.

“The number of hotels should increase from the middle of the year,” said Keeling.

Investors hoping to get into troubled real estate in foreclosure or buy off troubled loans are keeping their powder dry waiting for opportunities.

“A lot of money is being raised to pursue,” said Craig Hall, a Dallas real estate developer and investor who expects distressed properties to be put up for sale this year. “I don’t think it will be an avalanche, but rather a steady flow of selected opportunities.

“We are going to use our money and I think there will be a handful of deals that we will get.”

Hall said he hoped to buy distressed homes or commercial mortgages from lenders. He said that both commercial mortgages backed by securities and bank loans need restructuring or repayment.

“Forbearance will help many people, but not everyone,” Hall said. “In the world of commercial mortgage-backed securities, they will be forced to take action.

“And at some point the banks will have to take action too.”

Hall, who has seen his share of property downturns for more than 40 years, said the COVID crash was different.

“The hotel area will be worse than the Great Recession, and I think the same in retail,” he said. “But it won’t be like the 1980s.”

Town East Mall in Mesquite is on lenders watch list due to pandemic issues.(Ben Torres / Special Contributor)The huge Dallas Market Center, northwest of downtown, was put on lenders watch lists for lower income.  The owners of the property have not missed any mortgage payments.The huge Dallas Market Center, northwest of downtown, was put on lenders watch lists for lower income. The owners of the property have not missed any mortgage payments.(Brandon Wade / Special Contributor)