(Mark Your Calendars: RealShare Apartments East, February 15^th in Washington, DC).

WASHINGTON, DC-Distressed commercial real estate is slowly climbing down from the heights it reached in October 2010, of $191.5 billion. Forthcoming figures by Delta Associates and Real Capital Analytics will show that distressed commercial real estate in the US totaled $166.9 billion in January 2012, down $4.7 billion since October 2011. “We think the decline in distress has begun and will continue in a meaningful way in 2012 and beyond if interest rates continue to cooperate and economic expansion picks up pace,” says the report, authored by Greg Leisch, president of Delta Associates.

The decline in distress is attributed to a mix of circumstances, starting with extend and pretend. Also, commercial valuations have begun rising in most metro markets, nudging properties up above the water line. In a separate report released last week by Green Street Advisors, it found that its Commercial Property Price Index was unchanged in January—namely that commercial property values have stalled over the past several months.  A low-return environment, the primary catalyst for earlier gains, is still here, it says, but an uncertain economic outlook has held back gains for now.

Still the rise has been enough for many borrowers, and Leisch says the decline in distressed CRE will continue “if interest rates continue to cooperate” and the economy continues to recovery.  However, he concluded that the real test for distress will come next year and in 2012, with $30 billion in loans coming due each year.

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For 2012, distressed real estate means office—this is the sector that still represents the largest share, at $41 billion, the report says. It is a decrease of $829 million, or 2%, from October 2011. Apartments continue in second place, with $35.3 billion of distress— a $0.3 billion, or 0.9%, drop since October. In third place was land/other, with $29.5 billion, losing $0.3 billion since October 2012. Retail is still in fourth place with $27.9 billion, down from $28.6 billion in October.

Paradoxically, industrial has the lowest volume of distressed real estate, Delta says, however its share of the distressed CRE market rose $435 million to $12 billion, an increase of 3.8%.