Fewer CRE properties in distress

The commercial market may be stabilizing.

Many commercial property managers have experienced a slowly stabilizing market, as a report from Real Capital Analytics found that distressed property levels have declined markedly.

While there is approximately $375 billion in distressed property in the market, more than half of this has been either sold to a company that can manage the debts, or the mortgage issues have been solved, World Property Channel reported, citing the report. The second quarter boasted the lowest levels of property distress since before the bankruptcy of Lehman Brothers.

"Properties aren't going through the foreclosure process, winding up with banks and then being sold for [practically] nothing, like in the early 1990s," Dan Fasulo, managing director at Real Capital Analytics, told the news source. "In this cycle, you had to acquire a loan, then work with outside advisors and lawyers to take control. There have been a lot of behind the scenes negotiations and private equity firms or opportunistic investors have been buying notes in order to take over the assets."

Overall, the first quarter showed a $10.8 billion total in defaults and other negative actions to commercial property loans, the report said. This represented a continued slow drop in the trend.

When examining the office market specifically, nearly 60 percent of all distressed property situations have been rectified, according to the report. However, approximately $44 billion in properties are still distressed, which makes this the most troubled sector in the country. Apartments have slightly more distressed situations solved, which left the sector with $33 billion in properties that were still troubled. However, that figure dropped 14 percent in the second quarter, which made it the most significant improvement of all.

There was an increased amount of workout activity during the second quarter, the report noted. In all, this activity was more than $16 billion, which allowed the total distressed balance to fall by more than $5 billion. In all, this represented the second largest drop in the distressed balance during the cycle.

The report added that distressed property sales had a significant decline in the past couple years. In 2012, the figure is approximately 10 percent of all commercial real estate sales. This is much lower than in 2010, when the figure was between 20 and 25 percent.

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