DALLAS-Investment fundsfocused on distressed assets – so-called “vulture” funds – arehaving a hard time deploying capital since the bulk of distresseddeals are smaller than $5 million.

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Al Pontius, senior vice president and managing director ofMarcus & Millichap, made the observation during the2nd Annual RealShare Distressed Assets conference hereat The Adolphus Hotel. Produced by ALM-Real Estate Media Group, theconference attracted more than 350 executives who were eager tohear about the current state of the distressed market.

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Pontius, who gave a special address titled “Three Years into theCapital Markets Meltdown: Where are we now and where are wegoing?”, noted that both international and domestic funds haveraised billions of dollars to take advantage of distressed assetsin the United States. “These funds represent a tremendous amount ofinvestment capital, yet their money is not earmarked for smallerproperties,” he pointed out. “They’re looking for larger deals, andthose are hard to come by.”

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In fact, 82% of all distressed transactions trade for $5 millionor less, according to Marcus & Millichap research. The averagesize for distressed property transactions is just $4.6 million.

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During his presentation, Pontius noted the number of distressedasset trades has increased dramatically. Activity increased 80%during the first half of the year compared to the same period in2009. “This is an accelerating trend,” he said. For example, asmuch as 40% of property trades in Las Vegas are distressed, headded.

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However, Pontius emphasized the fact that the pace of loansentering delinquency has diminished. “We’re way down from thepeak,” he pointed out. Specifically, the pace is down 72%.

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Although banks account for 60% of maturing loan volume over thenext three years and CMBS accounts for less than 20%, Pontius notedthat CMBS loans have a higher proportion of delinquent loans –nearly 9% of all CMBS loans are delinquent.

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