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Commercial foreclosure postings in the Dallas/Fort Worth Metroplex hit the highest level in 13 years this summer. If the trend continues, foreclosures could be a factor in 2008 assessments and appeals.

Older Buildings Prone to Foreclosure

Typically, the commercial properties posted for foreclosure are older and smaller office buildings, apartment complexes, shopping centers and warehouses.

George Roddy Sr., president of Foreclosure Listing Service, told The Dallas Business Journal the recent foreclosures did not include any signature properties like Class A office skyscrapers, upscale shopping malls or luxury apartments.

Market Impact

Mass appraisal techniques cannot fully gage the impact of foreclosed properties on the market as a whole. The argument by the appraisal district would be that foreclosures are not truly representative of the market. However, with the growing amount of leveraged properties, it could become the market standard.

This has happened before. In the late 1980s, more than 7,000 commercial foreclosures were posted in Dallas County alone.

The current 806 commercial foreclosures through August in Dallas, Tarrant, Collin and Denton Counties pale in comparison. Nevertheless, this is the highest number of commercial foreclosures reported for the area since 1994.

Income Approach is Best

Foreclosures of comparable properties can aid in the appeal process. By including foreclosures in your market analysis, this reflects the disparity from the true market sales and therefore can discredit the market approach to value.

The income approach to value with higher cap rates applied to the income stream can be a very successful appeal strategy in the midst of rising foreclosures.