WASHINGTON, DC-Delta Associates will be releasing figures this week that show the current total value of distressed commercial real estate nationwide at $166.8 billion. This number, compiled with data from Real Capital Analytics--which includes properties in distress, foreclosure and lender REO--represents an 11% decrease from the last report in March. At that time, the total value of distressed commercial real estate was $187.4 billion--an increase of 10% or $17.3 billion--since the January report and 33%, or $46.9 billion, from the November 2009 report.

So has the commercial real estate industry reached, finally, the bottom and is now beginning a turnaround? Maybe or maybe not is the disappointing answer--with an emphasis on maybe not. "There has been a slowdown in distressed assets for a couple of reasons," Delta Associates head Greg Leisch tells GlobeSt.com. "Lenders are continuing to work with borrowers to extend loans. Also, in many major markets we have seen the decline in valuations finally slow or stop. Some markets have even turned back up." He doesn’t believe that the decline in distress will continue, though. "I think we will hold in this current range for the next 18 months," Leisch predicts. 

That said, this report does represent a milestone for the industry. Since Delta began compiling these statistics last year, it is the first time that the volume of distressed commercial real estate has dropped. By contrast, total value of distressed real estate was doubling every three months during the first half of 2009. 

Another positive--for some quarters of the industry at least--is the decline of retail properties in distress. This asset class is no longer the largest segment of the distress market--a dubious distinction now held by the office sector at $34.9 billion. Indeed, retail properties showed the most improvement over the study period, down 38% to $25.7 billion. Only the two smallest sectors--industrial and other--had more distressed assets in June than in March, and they grew a combined total of $1.6 billion, the report said. 

The report also illustrated the changing fortunes of some markets as the industry downturn continues. The Manhattan market continues to have the highest distressed real estate volume, followed by Los Angeles/Orange County. South Florida, with $1,191 in distressed property per capita, has the highest ratio per capita besides Manhattan. And perhaps most surprisingly, the Washington, DC-area market has the next highest at $813 per capita--a trend that began in January. 

These trends may solidify or shift again as refinancing continues to be difficult for borrowers and banks continue to fail. The report says that "the real test of velocity of distress" will be this year and next with some $600 billion in loans coming due and up to 350 banks expected to fail.