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Property Preservation: The Dark Horse Of Downturns You've Probably Never Heard Of

As the first crop of commercial foreclosures hits the market, a niche group of mortgage service professionals is waiting in the wings, ready to strike while the iron is hot. 

Rising interest rates colliding with the end of pandemic-era moratoriums are putting property preservationists — the people who make sure delinquent and foreclosed buildings don’t become neglected and fall into disrepair — on high alert.

Calls for service are coming in already, but how demand trends will hinge largely on whether prolonged economic turmoil chips away at the tolerance lenders have shown thus far.

Those in the business are bullish that they will stay busy.


The property preservation industry has fluctuated dramatically over the past three years. Eviction moratoriums wiped out business on the residential side, but as restrictions lifted and landlords began forcing delinquent tenants out, demand for maintenance and repairs shot up. 

At the same time, rising interest rates and falling values have put many property owners underwater on their loans, which is bringing in business on the commercial side. 

“The pipe was getting drained, but now we are starting to see new properties coming in at the top,” said Craig Torrance, CEO of property preservation firm MCS.

There were 3,500 commercial foreclosures in the first nine months of the year, up significantly from 2,990 in all of 2022 and 2,639 in 2021, according to Attom Data Solutions. This year’s volume is about on par with pre-pandemic totals, with a little more than 3,500 commercial foreclosures recorded in 2019.

The vast majority of the MCS pipeline is concentrated in single-family and multifamily foreclosures as the company works through a backlog of requests that originated before the pandemic, Torrance said. 

“The numbers are still skewed to residential,” he said. “But we are certainly getting more and more requests around commercial properties.”

MCS was founded in 1986 as a property preservation company focused exclusively on residential. It evolved to add commercial buildings, and last year it expanded its services to include performing properties, including the maintenance of single-family rentals.

The company is poised to grow by 58% this year, in large part due to the incorporation of SFR. But an increase in foreclosures is also driving revenue, with property preservation business expected to increase by up to 15% in the same period, Torrance said.

On the multifamily side, foreclosure business has been partially driven by distress in portfolios owned by multifamily syndicators, groups with outsized exposure to commercial real estate debt. 

Syndicators, entities that pool capital to purchase real estate for limited partners or passive investors, ramped up acquisitions considerably during the pandemic. They mostly gravitated to value-add opportunities they could buy on the cheap, flip and turn a big profit. 

Many used floating-rate debt to fund their purchases. But as interest rates and expenses shot up and rent growth normalized, owners found themselves overleveraged and unable to pay back their loans.

“There may be some weakness in multifamily going forward,” said Rick Sharga, founder and CEO of CJ Patrick Co. “Partly because you have some syndicators that are leveraged to the hilt, and if market conditions weaken, they could find themselves really with no good options other than to default on their loans.”

That is where companies like MCS step in.

Property preservation companies care for the inside and outside of buildings that have been foreclosed on or are threatened with foreclosures. Properties can be vacant or occupied, though Torrance said more often than not, residents and tenants remain on-site right up to eviction. That is because the options for where they can go next are often slim.

Applesway's portfolio includes Timber Ridge Apartments at 12200 Fleming Drive in Houston.

Five major syndicators — Tides Equities, GVA Investments, Nitya Capital, ZMR Capital and Rise48 Equity — hold $3.6B in CRE collateralized loan obligations with maturities of 30 months or less, according to Trepp data reported by GlobeSt.

Los Angeles-based Tides Equities saw its debt payments soar as the Federal Reserve jacked up rates, at one point calling on investors to inject equity or risk the company defaulting on its loans. It had 47 loans totaling about $1.5B due by the end of 2025, most of which were acquired using floating-rate debt.

Applesway Investment Group, another multifamily owner, defaulted on the $229M floating-rate loan it got from Arbor Realty Trust to acquire four apartment complexes in Houston.

Arbor ultimately foreclosed on the portfolio, and some of the lender’s multifamily bridge loans were reportedly threatened with delinquency, though a company spokeswoman said Arbor had "very low levels of nonperforming loans," producing a just-issued Q3 report.

Unlike Applesway, Tides Equities avoided disaster by securing workouts on several dozen of its loans. This outcome will likely be common due to the confidence lenders have in the long-term success of multifamily, said Shams Merchant, a real estate attorney with Jackson Walker.

“The fundamentals still make sense, and lenders are still willing to play ball and do deals in multifamily,” he said. “They’re willing to work with their borrower to get across the finish line.” 

Continued demand for multifamily is all but guaranteed due to strong demographics and the nation’s crippling housing affordability crisis, but the threat of recession and a potential uptick in unemployment could threaten its stability. 

The fallout from delayed rent payments could be especially acute in states like New York, where Sharga said a landlord “basically needs an act of God” to evict a tenant.

“The first jobs that are lost in recessions are usually renters',” Sharga said. “A lot of the small investors who own these multifamily units may not have the financial wherewithal to manage their tenants missing three, four, five or six months of rent.”

Torrance said he expects to see his multifamily business continue ticking up, especially as lenders exhibit less leniency toward owners without a proven track record of weathering downturns. 

“Landlords that have good long-term relationships with their lenders are more successful,” Torrance said. “Those that are less mature and don’t have great relationships are the ones they are foreclosing on.”

Whether the property preservation industry continues to be fueled by an increase in foreclosures will depend on how lenders choose to handle delinquent loans.

Many notes have already been extended, and as maturities loom, what happens next will vary greatly based on asset type and the profile of the borrower, said Terri Adler, managing partner at New York real estate law firm Adler & Stachenfeld. 

“We continue to see lenders who are extending, changing terms, negotiating … but some lenders are also definitely just saying, ‘We’ll take the asset. We’re OK with that,’” Adler said. “There’s a lot of decision points that determine where the borrower wants to be and where the lender wants to be.”

The stigma of handing back the keys has lessened since the Global Financial Crisis, Adler said. Today’s lenders understand that for many owners, the inability to recapitalize is dictated by forces beyond their control. 

“There was a real black mark on a borrower or affiliates that had been foreclosed upon. Lenders really frowned on that,” Adler said of the GFC. “This time around, it doesn’t necessarily seem like borrowers are as inhibited by giving back an asset that no longer makes financial sense.”

When Torrance took over MCS just under three years ago, he said he made an effort to diversify the business so as to not be a prisoner to the booms and busts of the economy. But property preservation remains an important source of income — and one that Torrance doesn’t plan to take for granted anytime soon.

“There are certainly indicators that would suggest we’re heading into a worse economy in 2024, 2025,” he said. “So I feel bullish about that business.”

CORRECTION, OCT. 27, 2:11 P.M. CT: This story has been updated to include results from Arbor Realty Trust's third-quarter earnings report and 10-Q that were released Oct. 27.