"It was bound to happen," Delta Associates' CEO Greg Leisch tells GlobeSt.com. "We have had a couple of national players with significant assets here that are distressed, such as General Growth Properties and Tishman Speyer." These and other companies came here because they perceived the market to be stronger and safer, Leisch says. "Some of them invested unwisely as a result."
Nationally, the level of distressed assets has grown about 21% since November and 49% since August, according to the report, which is based on data provided by Real Capital Analytics. The rate of growth has clearly slowed from its peak during the first half of 2009--a period when the total value was doubling every three months.
However this is not necessarily a sign of returning market health; rather, Delta Associates believes it is more a reflection of the ongoing trend among lenders to extend debt obligations to borrowers. Retail, as it was last quarter, is the sector experiencing the most distress, at $38.5 billion; last quarter that figure was $35 billion. Also, distressed office properties grew by $10 billion since November to $31.8 billion--a 46% increase, according to the report.
In the DC area, distressed office assets now exceed $1 billion, while stressed office assets total about $571 million, Delta says. At $976 million, the District has the highest volume of distressed assets, while Northern Virginia has the highest volume of stressed assets at $622 million. Tishman Speyer's office portfolio is contributing to much of the District's woes. In addition, Broadway Management has defaulted on two large condominium projects--The Dumont and Senate Square.
Leisch believes neither the District nor the national markets have peaked yet. "I think the peak will come in 2011 or early 2012." The good news, he says, is that the apartment and condo markets are stabilizing, "so it is unlikely we will see much of an increase in distressed assets in those categories, at least locally." Most of the distress will occur in office, retail and land in the period ahead, he says.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
