Commercial real estate investors who were specifically interested in distressed properties will find they are more difficult to access than in the past. According to Real Capital Analytics (RCA), the volume of distressed commercial premises in the United States is waning and is currently at the lowest level since before Lehman.
A total of $375 billion of distressed properties have been identified, but over half (55 per cent) of the distress has been resolved or the property has been sold to a third party. At this time, more properties are moving out of the distressed category than are being added to it, which would indicate that the wave has peaked and is now on its way down.
The cycle of properties going into foreclosure, ending up being taken over by the banks and being sold for a fraction of their original value which played out in the 1990s is no longer the reality. In the current cycle, private equity firms and investors are buying notes to take over distressed properties. According to the RCA’s “Distress Update,” defaults were down in the first quarter of 2012 to $10.8 billion.
Over half (57 per cent) of the distress has been worked out in the office market. Properties worth approximately $44 billion are still in the distressed column, representing the highest total of all property types.
The RCA Distress update goes on to state that workout activity escalated in the second quarter of 2012 to $16.2 billion, which reduced distressed balance by $5.4 billion. This amount represents the second-largest quarterly reduction to distress balances in this cycle.
Only about 10 per cent of sales are for distressed property now, according to RCA. At the height of the distressed property market in 2010, 20-25 per cent of closings were on properties in this category.
