Brooklyn commercial foreclosures drag compared to other NYC boroughs

Some beginning to give up on note investments because of long legal process

New York /
May.May 08, 2012 05:30 PM
 

Distressed commercial properties that have fallen into the foreclosure process in Brooklyn reach the auction stage at just about a third of the rate of those in Manhattan, Queens and the Bronx, data from real estate firm PropertyShark.com shows.

The lower rate of commercial properties being sold at auction indicates what many real estate insiders in Brooklyn say — that the foreclosure process is much longer in the borough.

Note brokers active in the market say it takes about six month longer to get through the process in Brooklyn compared to the process in the other boroughs. (Staten Island was excluded from the survey.) And borrowers are aware that it takes longer, and use that to their advantage.

“Borrowers know they have that sweet time to do what they want and they lever it against you,” Dovi Lesches, a principal with Midtown-based Empire Equities, which is active in Brooklyn note buying, said.

Brooklyn’s slow foreclosure pace for residential properties has been highlighted this year. But there has been little attention given to the similar situation within the commercial market and how it is impacting sales.

Brooklyn has seen more than twice the number of commercial property lis pendens filed, compared to Manhattan, Queens and the Bronx, but the rate of notes that have gone through the foreclosure process is much lower, PropertyShark.com figures show.

There were 595 mortgage lis pendens filed (indicating the start of the foreclosure process) in Brooklyn in the three years between Jan. 1, 2009 and Dec. 31, 2011, which was more than double any of the other boroughs analyzed. Manhattan had 242 lis pendens, while Queens had 213 and the Bronx had 167.

While Brooklyn had more than twice the number of cases, a far smaller proportion of them have been scheduled for auction. Just 3 percent of the Brooklyn cases were scheduled for auction, while that number was between 10 percent and 13 percent for the other three boroughs tracked.

Note investor Yosef Katz, a director at investment firm GFI Realty Services highlighted another major difference between Brooklyn and the other New York City markets. Some of those who bought notes over the past few years are losing patience with the process, and want to unload the debt either at the same price they paid or in some cases for less money, he said.

“Those who bought in the first wave are coming back to the market to resell the notes. It’s because of their frustration with the foreclosure process,” Katz said.

One private-equity investor from New York, who would speak only on the condition of anonymity because he did not want to alienate Brooklyn’s slower judges, said he was shying away from buying in the borough.

“In my opinion the situation is so bad in Brooklyn that I won’t [buy notes there],” the person said.

However, there are others who had no qualms with buying debt in Brooklyn, but they acknowledged they had to be more careful.

“The type of buyer in Brooklyn is quicker to make a deal with the borrower than to foreclose,” Katz said.

In March, Empire Equities bought the debt on a stalled, but mostly completed 12-story apartment building in Bedford-Stuyvesant, Lesches said.

The stalled development, at 333 Greene Avenue, had principal and interest due of more than $18.4 million, court records show, at the time Empire bought the debt, but the developers remain in court fighting amongst themselves.

Lesches said his firm felt comfortable buying the note because he had a relationship through several people with one of the borrowers.

“That is why I like Brooklyn, because in Brooklyn you can be your own person if you have the connections,” he said. Those connections are used more often in Brooklyn [than the other boroughs] to resolve foreclosure cases and work out deals to buy the notes, he said.


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