We all know why home foreclosures are bad. Nose-diving home values and neighborhood blight are just two of the ugly offshoots of mortgage defaults.
But should we care if the neighborhood shopping center, office park or condo project go bust?
We should. A lot.
Experts fear that a commercial real estate meltdown, following hard upon the housing collapse, could prolong economic turmoil in a Tampa Bay region already slogging toward 12 percent unemployment.
So far, foreclosures have proceeded relatively smoothly for commercial missteps such as St. Petersburg's BayWalk entertainment complex and Tampa's never-built Westshore Beach Club.
But with shopping centers and office properties in the Tampa Bay area shedding up to 30 to 40 percent of their value — combined with the $1.2 trillion in commercial real estate debt coming due nationally over the next three years — our good luck might not hold:
• Community banks in Florida, most of which survived the housing meltdown, invested heavily in commercial real estate. Half of all real estate lending in Florida is commercial, construction and land development loans, surpassing even residential lending. It's no secret that the Federal Deposit Insurance Corp. has opened a huge office in Jacksonville to oversee what could be dozens of bank closures in Florida and Georgia.
• Bank failures could lead to further credit tightening, depriving Tampa Bay businesses of capital to operate and expand. That could make it harder to drive down the area's 12 percent unemployment, the highest jobless rate in 35 years.
• Already beset by residential foreclosures that have quadrupled since 2006, judges in Hillsborough, Pinellas and Pasco counties fear a wave of commercial foreclosures, most of which are contested, could gum up the courts. That could delay the necessary process of appraising and selling off troubled real estate.
"It is coming," said Thomas McGrady, chief judge of the Pinellas-Pasco County Circuit. "And it could break the whole system."
To be sure, not everyone fears a catastrophe. Tampa commercial real estate broker Eric Odom notes that in the last real estate bust, in the early 1990s, downtown Tampa was oversaturated with empty office buildings. Troubled projects included skyscrapers like SunTrust Financial Center and 100 North Tampa.
"We don't have the towers standing empty like we did last time," Odom said. "Most of the speculation this time around was in residential real estate."
But real estate attorneys Marsh Rainey and Scott Brown, surveying the market from the 32nd-story offices of Williams Schifino Mangione & Steady in downtown Tampa, have spotted plenty of turmoil on the ground.
It's not necessarily the big office projects that are causing problems. It's the glut of office strips popular with physicians they dub "docs in a box." They also single out the "light pole farms" — shopping centers and subdivisions that were never fully built or occupied and are now defaulting on debts.
It's typical to see a shopping center developer trying to pay off an $8 million loan for a project no longer worth $5 million, Brown said. Unable to refinance the debt, many of these businesspeople are headed for failure. It has happened in places like FishHawk Ranch in east Hills- borough, where fewer home buyers has meant fewer retail customers.
"We're talking seven-figure deficiencies. Banks don't walk away from seven-figure deficiencies," Brown said. "There's just no liquidity to stretch these debts out."
Larry Richey, regional president of the Cushman & Wakefield real estate firm, said even the lenders who stick with their borrowers through tough times often delude themselves.
"There's a lot of what we call 'extend and pretend,' " Richey said. "Lenders extend some of those loans and pretend the real estate values haven't dropped 30 percent. It's only begun to work its way out."
Like residential lending, commercial lending relied on mortgage-backed securities, essentially bonds that could spread the risk around the globe. Like their residential cousins, commercial securities have dried up.
Miami-based banking consultant and economist Ken Thomas has tracked what he said are 500 "problem banks," 10 percent of which are in Florida. These banks serve many smaller businesses neglected by the national banks.
"There's no doubt about it. Commercial real estate is next,'' Thomas said. "People lose jobs, they can't buy in the stores, the stores can't pay their rent and the bank's got problems.''
It's not just a bank problem, but a court problem. It's bad in Pinellas but even worse in Pasco and Hillsborough, sites of much of the new home construction.
Each of the 11 civil circuit judges in Hillsborough County is handling 3,500 pending cases, nearly two-thirds of which are home foreclosures. Before the housing crash, foreclosures represented about a quarter of their case load.
"We've been told there's going to be another rush," Trial Court Administrator Mike Bridenback said.
Most residential foreclosures are uncontested in light of the heavy investor/speculator element in that market, which means they generally don't take as long to move through the court system. Not so with commercial foreclosures. Rainey recently completed a two-week commercial foreclosure trial in Tampa involving expert testimony and reams of paperwork. The judge — juggling hundreds of residential foreclosures — had to clear his calendar to handle that trial.
But the biggest fear is that the albatross of the housing market could make way for the condor of the commercial market.
In the nation as a whole, commercial debt is a third of the volume of residential debt. But among Florida banks, commercial loans, broadly defined, outpace residential.
Banks have been trying to sell the loans for "dimes on the dollar" to investors, but it's hard to find takers in many cases. That's what stymied recent attempts by GMAC to sell its multimillion-dollar land loan on the underperforming Connerton "new town" development in central Pasco.
"The number of commercial loans set to mature clearly indicates there will be more commercial foreclosures than we've ever seen," Richey said.