DALLAS-The peak of distressed properties has come and gone,according to Gregory Leisch, chief executive officer of DeltaAssociates.

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“Our conclusion is that we have reached a plateau in the volumeof distress,” Leisch said during a special address at the2nd Annual RealShare Distressed Assets conference hereat The Adolphus Hotel. More than 350 executives attended theconference, which was produced by ALM-Real Estate Media Group.

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“From March 2009 to March 2010, we saw [distress] increase about$10 billion per month,” Leisch noted. “Since then it’s been flat.Therefore, it is our thesis that we have seen the peak.” As moreproof to back up his thesis, he added that this month, for thefirst time, the industry has seen a decrease in construction loandelinquencies.

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Leisch said the most recent “distressed cycle” was shorter thanthe cycle in the early 1990s. For example, property valuesrebounded in second quarter 2010 after only eight quarters,according to NCREIF. During that period, values declined 33%. Incontrast, during the 1990s downturn, the U.S. experienced sevenyears of negative property trends for total decline of 39%, Leischrecalled.

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Leisch, who was the featured speaker on a panel titled “Distress– A Statistical Overview”, acknowledged that he has a somewhatcontrarian view on distress. “There are risks that I am wrong andthat we have not plateaued – that distress will exceed $160 billionas it stands today,” he admitted.

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The biggest risk, according to Leisch, is interest rate risk,which has yet to materialize. “So far so good, thanks to debtcrisis in Europe and our own slow growing economy,” he noted. Otherrisks include: loan maturities that may not be able to berefinanced; anemic job growth and bank failures.

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“[Bank failures] are the biggest wild card because a failed bankviews commercial real estate as a liability and not an asset, andwhen viewed this way, there is no loss too large,” Leischexplained. However, he pointed out the bank failure rate duringthis cycle, while concerning, is well below the failure rate seenduring the late 1980s and early 1990s.

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“So far, they’ve figured out how to kick the can down the road,”Leisch concluded.

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