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Distress in Commercial Real Estate Sector Maintains Plateau

The research firm ""Delta Associates"":http://www.deltaassociates.com/ says distress in the commercial sector is maintaining its plateau.

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The company's analysts report that despite a $5 billion increase in the volume of commercial properties in foreclosure and lender REO over the last two months, the level of distress has remained in the $175 billion to $190 billion range since the spring of last year.

The firm puts the current value of foreclosed and bank-owned commercial real estate at $180.6 billion.

Delta Associates said in its report, ""The plateau has occurred as lenders continue to extend debt obligations, and commercial property values are stabilizing in many markets. With property values beginning to rise in select metro markets, some deals are no longer under water.""

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The months ahead, though, will put the staying power of the stabilization seen thus far to the test, according to Delta Associates.

The firm's analysts explained, ""The real test of the plateau of distress will be seen this year, with almost $300 billion in loans coming due and delinquency rates possibly edging up again. We think meaningful decline in distress will not occur until 2012.""

Delta Associates says the office sector continues to represent the largest share of distressed real estate at $43.3 billion. This is an increase of over $3.8 billion, or 9.8 percent, since February 2011.

Apartments are still in second place, with $38.4 billion of distress, but the research firm says this asset class seems to be on the mend with regard to operating fundamentals.

The hotel sector has now moved into third place with $31.8 billion in distress.

According to Delta Associates’ analysis, Manhattan still has the highest volume of distress, followed by Los Angeles-Orange County.

The firm’s analysts note that while the volume of distressed commercial real estate properties is significant, also of significant concern is the looming volume of _stressed_ property, with characteristics such as maturing loans, bankrupt tenants, financially troubled owners, or other obstacles that could potentially lead to distress in the future.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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