WASHINGTON, DC-Finally, distressed commercial real estate in the United States appears to have broken through its plateau and has started heading for a decline. The level of distress in the commercial real estate market totaled $171.6 billion in October 2011—down $9.5 billion since June, according to soon-to-be released figures from Delta Associates and Real Capital Analytics.
After peaking at $191.5 billion in October 2010, distress plateaued in March 2010, hovering in the $175 billion to $190 billion range until now. The level stayed in that range for so long, writes Greg Leisch, CEO of Delta Research and author of the report, because lenders continued to extend debt obligations, and commercial property values stabilized in many markets.
“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,” Leisch says in the report.
The industry is not out of the woods, yet, however, he adds. The real test of the distress plateau will be seen in 2012 and 2013, as about $300 billion in loans come due each year.
Distress in the office sector for this quarter clocked in at $41.9 billion, the largest share of distressed real estate. This number, however, represents a decrease of $1.6 billion, or 3.7%, since June 2011.
Multifamily follows, with $35.6 billion of distress—a $0.4 billion, or 1.1%, drop since June.
Hotels dropped $10.7 billion, or 30.7%, since June to $24.2 billion. It now occupies the fifth highest category, from third. Land/Other has moved into third place with $29.8 billion, a $0.3 billion drop since June 2011.
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