For years, talk of an impending wave of distressed commercial real estate sales has stirred the market, fueled by refinancing challenges and looming loan maturities. Now, that long-awaited moment may finally be arriving—but not in the sweeping, market-wide way many expected. Instead, distress is surfacing in pockets, depending on an asset's type, location and leverage.
"Over my career — and I've been doing this for 38 years — there is endless talk of the debt maturity tsunami wave," Harold Bordwin, principal and managing partner at Keen-Summit Capital Partners, tells GlobeSt.com. He calls the phrase "tired."
"It never comes as a tsunami," he adds. "The debt maturities in 2026 are a significant market, but the capital markets have opened up significantly over the last few years. They have sufficient capital reserves, and the regulators are comfortable enough with them being aggressive and recognizing substantial losses."
According to Bordwin, many assets are still selling for market value. Prices, however, vary widely, depending on property type, location, cash flow and construction status.
"We've seen properties sell for more than and less than the appraised value," he notes. Distress tends to emerge among developments that can't refinance or complete construction, or among projects that were heavily leveraged—75% or more—with low-interest-rate debt now facing refinancing.
Rick Porras, CFO at Neology Group, says his firm has yet to see broad price erosion in multifamily. "If anything, newer product is pricing at a premium while the older pre-2021 product is comparable to existing values," he says.
"Occasionally, you may see a distressed asset marketed, but usually through a foreclosure, which could be time-consuming. Land ready for development is still at high levels."
Different markets tell different stories. Philippe Lanier, principal at family-operated EastBanc, says conditions in the nation's capital feel pressured across the board. "Everything is distressed right now," he says.
"There's an absolute supply-demand imbalance of capital," Lanier adds. "Existing assets are trading at between 10 and 40% off of replacement costs. It's not a surprise to the sophisticated investment market."
Washington, D.C.'s height restrictions limit potential income density per land area, making properties there less financially attractive than in markets like San Francisco. "An investor might want to put in 20% less money for a property in the former," he says.
For Lanier, part of the distress story isn't just about capital or construction delays but about how people use space. "A big reason why real estate is distressed everywhere is that people use real estate differently than they used to," he says.
Bordwin points to another fundamental shift: inflation.
"What we're seeing that's different in this cycle is the impact of inflation," he says.
"I don't recall that being a factor [before]. Now we're seeing a variety of development projects that didn't get through and construction projects that didn't get through construction. Inflation is a big factor. It's inflation during COVID with supply issues and wage inflation and building materials."
Developers and investors, he adds, calibrated financial models and loans around assumptions that no longer hold up in today's cost environment. The long-anticipated "wave" of distress, it turns out, may be less a sudden flood and more a slow, uneven tide.
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