Milwaukee agency seeks money to spur resales
Milwaukee has acquired 117 commercial properties through property tax foreclosure since 2010 but has found buyers for only 19 of those buildings.
That resale rate is too low, said Martha Brown, deputy commissioner of the Department of City Development, and Milwaukee has to revise its methods.
The city owns far fewer foreclosed commercial properties than residential. According to numbers provided by Brown, Milwaukee owns 141 commercial buildings and 1,080 homes.
But the resale rate for foreclosed homes is much higher. In 2013, the city acquired 617 foreclosed homes and sold 284, or roughly 46 percent. In 2013, the city acquired 40 commercial properties and sold seven, or roughly 17.5 percent. The sold commercial and residential properties were from the overall property pool, rather than just the 2013 acquisitions.
The city has placed a priority on selling the homes. Milwaukee Mayor Tom Barrett’s Strong Neighborhoods Investment Plan, established in the 2014 budget, has $11.7 million to mitigate the city’s home foreclosure problem. That money has been set aside to pay for, among other things, demolition, marketing and repairs.
But the city has no similar plan for commercial foreclosures, Brown said, despite demand for assistance from potential buyers.
“The property inventory we have is often distressed,” she said. “It lacks mechanicals. It’s sat vacant for a number of years, and all of those things make it less attractive to the market.”
In many cases, thieves have picked over the buildings before the city acquires them. Buyers would have to spend a lot, sometimes more than is feasible, to patch up the battered remains, Brown said.
“We have had sales fall through,” Brown said, “because buyers didn’t have a clear understanding of the investment required and the amount of renovation it would require.”
So the DCD will ask the city to set aside money in the 2015 budget, though Brown said she does not know how much, to help attract buyers for the commercial buildings. That money could be used for forgivable or low-interest loans for renovations, she said, or it could pay for repairs while building occupants are enrolled in a rent-to-own program.
The city already offers both types of assistance for homeowners.
Check out Beth Kevit’s related blog post “Finding the foreclosures”
Alderman Ashanti Hamilton, whose district has 15 city-owned commercial foreclosures, said those incentives could spur more interest from potential buyers. A revolving loan program seems to be the most popular idea so far, he said, but forgivable loans and grants have been suggested.
But even if the city establishes incentives for commercial sales, another challenge could be looming.
Jeno Cataldo, a partner at Milwaukee-based Prowess Real Estate Cos. LLC, said he has noticed buyer interest shifting away from commercial foreclosures in the past two years. Bank-owned commercial foreclosures used to be attractive, he said, because a buyer, if on firm financial ground, could get a great deal.
Now, Cataldo said, the discount is much less. The cost of a building might be less than market rate, he said, but when repair costs are factored in, that foreclosure might end up being more expensive.
“There’s still stuff out there,” he said, “but it’s not what you’re looking for.”
Milwaukee files for foreclosure when an owner falls three years behind on property taxes. That means the city is starting to get the wave of foreclosures banks have been dealing with for years, Brown said, using acquisition numbers from 2010 through 2013 as proof.
In both 2010 and 2011, the city acquired 17 commercial buildings. But in 2012, roughly three years after the recession began, with some time added for court proceedings, that number increased to 43.
Joe Eldredge, investment brokerage vice president for Milwaukee-based Colliers International, said he has noticed a different shift, but that one is away from owner-occupants and toward speculative investors.
The remaining commercial foreclosures, he said, are the worst of the worst from the economic downturn. Most prospective owner-occupants, Eldredge said, have enough financial strain trying to keep a business afloat and cannot pay for the repairs necessary to reopen a shuttered building. But speculative investors can.
“This is their business,” he said, “and they have the wherewithal to physically stabilize a property and prepare it for the market.”
The city, Eldredge said, should consider seeking out those investors.
Brown said the financial incentives proposed for the 2015 budget would be available to investors and owner-occupants.
But solving the commercial resale problem will require more than money, Brown said. The department has reassigned two staff members to focus on commercial properties, she said, and she plans to examine the city’s sales process to ferret out unnecessary obstacles.
In a private commercial sale, she said, the seller usually wants to know only that the buyer has the money. The process is more complicated when the city sells a property.
Milwaukee, for instance, will not sell a property to someone who wants to open a pawn shop or a payday loan store. The Common Council and sometimes the Board of Zoning Appeals must approve terms of the sales.
The city also requires a contract clause that lets Milwaukee reclaim a property if the developer fails. And the city has to approve renovation plans.
Brown said she suspects some of those extra layers are hindering sales, though she was not ready to recommend which ones the city should scrap.
“We need to just examine,” she said, “whether our restrictions are in balance with what the market will bear.”