Could Dallas-Fort Worth Office Vacancies Lead To More Bankruptcy?

June 29th, 2010 by Reed Allmand

Dallas-Fort Worth office building vacancies have reached their highest level since 2004. With 4.8 million square feet of vacant office space, the occupancy rate for office buildings is a mere 74 percent, leaving many commercial real estate owners and investors facing foreclosure and even bankruptcy.  And if the number of vacancies continues to remain elevated we could see more commercial real estate investors and owners filing Chapter 11 bankruptcy to help them through the recession. Here’s why:

1. High vacancy rates are threatening to depress rental rates across the commercial real estate industry. Landlords already feel the pressure to offer lease deals that we haven’t seen in years; but if there is a glut of space available for rent, they may be forced to lower their rents. Lower rents could impact their ability to repay mortgages and may shake lenders’ confidence in their company.
2. High vacancy rates may push some commercial real estate companies into foreclosure as they find they are unable to generate enough revenue due to a decline in tenants.  Faced with empty rentals and a jittery lending market, many commercial real estate owners may be pushed into foreclosure by lenders who call in loans and refuse to refinance or allow more time for repayment.
3. Commercial real estate owners who are facing foreclosure may choose, like many before them, to file Chapter 11 bankruptcy in an attempt to buy more time and restructure their debt.  Oftentimes, commercial real estate lenders may feel they have a better chance of getting the financing they need if they are able to restructure debt in Chapter 11 bankruptcy and prove to potential lenders that they can become a viable company with the help of bankruptcy.