CRYSTAL LAKE – Commercial property foreclosures continue to increase, but the market in McHenry County could bounce back in 2011, local experts say.
"I'm not sure we've hit bottom yet, but I'm cautiously optimistic about a rebound next year," said Jack Minero, a commercial real-estate agent with Prudential First Realty in Crystal Lake.
McHenry County has seen several high-profile commercial foreclosure filings in recent years. The unfinished Riverside Square building, dubbed the “Tyvek Tower” at the corner of Routes 31 and 62 in Algonquin, is perhaps the most visible. But there have been many others.
Woodstock Station, a downtown redevelopment property, went into foreclosure and was bought by Barrington Bank for $1.25 million at a public auction in 2009.
A foreclosure notice was filed against the company behind the 644-home Tall Grass subdivision planned for Prairie Grove in 2008.
In late 2009, the private Turnberry Country Club in Lakewood went into foreclosure.
And Harris Bank filed a mortgage foreclosure on Galt Airport in Greenwood in February.
With plenty of vacant retail space, and fewer tenants paying rent, prices for commercial properties have dropped dramatically. Foreclosures followed.
"There has been a 30 [percent] to 40 percent erosion of value in the last two years," said Bruce Kaplan, a broker with Premier Commercial Realty in Lake in the Hills. "Property owners have seen equity evaporate before their eyes."
That has led some banks to request additional capital from property owners before refinancing mortgages.
Commercial loans have relatively short terms and must be renewed every three to five years. A renewal often means a reappraisal, and if the loan-to-value ratio has changed, lenders might ask for more collateral.
"A lot of people walk away if they don't have the cash," Kaplan said.
Although there isn't a reliable way to track commercial foreclosures, several real-estate agents told the Northwest Herald that they believe the numbers were up in 2010.
Overall, foreclosure filings for all types of property increased in 2010. As of November, there had been 3,362 filings in McHenry County. That is compared with 2,436 filings during the same period in 2009, according to the latest statistics from the McHenry County Circuit Clerk's Office.
Prices have declined across the board, Minero said.
"Everybody has been hit," he said. "I don't think anyone has been immune."
He used a deal involving a 10,000-square-foot space as an example. The property would have fetched $16 a square foot a few years ago, but recently was leased for a six-month term at $4 a square foot.
"It's better to have some money coming in than an empty building," Minero said.
Making matters worse, buyers are scarce and banks have tightened lending requirements.
"More and more owners are giving property back to the bank as it becomes obvious they aren't going to get tenants," Kaplan said. "It's impossible to make payments without income."
Kaplan expects to see more foreclosures, at least in the near term.
Saying what's next for the commercial market isn't easy, said Wayne Kurchina, broker and owner of IL Realty in Fox Lake.
"It's hard to predict if there will be more foreclosures," he said. "Some banks are trying to work out deals with owners to prevent foreclosure, but banks can only carry that bad debt on the books for so long."
Even so, there are some positive signs in the real estate market.
"Forecasters see a light at the end of the tunnel," Kurchina said. "After three years, they feel the retail real-estate sector is set to recover in 2011."