NAI Horizon Sells Islands Village Shopping Center in Gilbert for $7.5M: The Evolution of the Local CMBS Market

The Islands Village Shopping Center, located at 1422-1560 W. Warner Rd in Gilbert, Arizona just sold for $7.5M or $72.75 per square foot.  The 103,082 square foot retail anchored center is a multi-tenant property located at the heavily travelled intersection of Warner & McQueen. Gilbert is the fastest growing community in Arizona.  Voted 2nd Safest City and 8th Most Thriving City in the U.S., Gilbert boasts an impressive economic climate.  With 38.3% of residents holding a bachelor’s degree or higher and a median income of $76,574, Gilbert is home to rising technology companies growing and relocating within its borders.

The seller was represented by Barbara Lloyd and Lane Neville with NAI Horizon’s Investment Services Group.  This was an REO sale; the loan on the property was a commercial mortgage backed security (CMBS) loan.  The property had experienced distress due to the real estate recession and was foreclosed upon by the lender.  The property was purchased by BH Properties which marks the third commercial transaction in the Valley with NAI Horizon in the past two years.

Islands Village Shopping Center was broadly marketed nationwide and the sale was held in a competitive bid format and generated multiple qualified offers.  The competitive sale strategy has proven successful over the past two years for NAI Horizon’s Investment Services Group and has become a trademark approach for the team.  Since 2012, the NAI sales team has sold over $110M in CMBS and REO bank properties represented in over 20 transactions. 

The NAI Horizon Investment Services Group has seen the need for aggressive and targeted marketing for these types of properties, and has been able to provide successful results for their clients in every assignment they have pursued through this competitive bid process.  The sale process maintains control for the seller, creating a specific timeline for selling the property while the competitive nature of the sale yields the highest results.

Islands Village is part of a growing sector of the Phoenix CRE market that has made its way through the distressed process.  This recent downturn has dramatically affected our market over the past five years. We are well into our recovery, but overall it has been a slower process than many expected.  The CMBS portion of these commercial loan delinquencies will continue based upon 10-year loan maturities over the next 24 to 36 months; there is a dramatic increase in maturing loans originated during the boom years of our market highs from 2005 to 2007.  At this point in our recovery, while most distressed assets with loans from regional and national banks have worked their way through the system, there is potential for another wave of foreclosures unique to the CMBS assets.  The volume of foreclosures may not be comparable to what we experienced from 2011 to 2013, however there will be assets whose loan to value ratios have not yet recovered.

According to the Trepp Report, in 2015, Maricopa County will see over $2.4 billion of loans mature, that is represented by 189 CMBS loans, this will cause an increase in properties needing to be short sold or foreclosed on because the loan balance is higher than the current market value.  This spike will continue into 2016 and 2017 with over $4.7 billion in maturing loans.  For comparison, this year (2014), there are only 81 loans in Maricopa County (or $531 million) that will come to maturity. 

Many of the properties that were purchased over the past five years out of distressed situations are now in a position to re-enter the market as a stabilized or semi-stabilized asset. With that positive direction in the market, we will continue to see a shift from buyers that were chasing distressed properties to those wanting to invest in more quality, stabilized, cash flowing assets.

2014 will be a year of transition with property performance and values continuing to improve. The U.S. CMBS delinquency rate has improved for the last 11 months, with a current delinquency rate of 6.44% as of April. This marks a 259 basis point decrease compared to 12 months ago, and is down 390 basis points from the all-time high reached in the summer of 2012. However, while the market is currently experiencing a lull in CMBS delinquencies, based on the timing of upcoming maturities, high loan amounts and potential lack of equity or new debt for existing borrowers, we predict there will be an increase in new CMBS distress opportunities over the next 12 to 36 months.

Overall, the outlook for the Phoenix metro area remains optimistic and that outlook will only continue to strengthen with improved job numbers and limited increases in interest rates.

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