A Statistical Look at Distress Levels

Posted on March 3, 2011

The rubble of distressed commercial real estate properties and loans has piled up shockingly during the Great Recession (waning though it appears to be) and has left the country littered with overvalued and overleveraged assets. The good news is that, it also means that money that has been raised and stockpiled for to pick through such properties still have opportunities to uncover prized nuggets.

At the end of February, CoStar Group’s database shows more than 118,487 distressed office, industrial and shopping center properties (defined as those that are currently 60% or more vacant.)

As a way of comparison, in September 2009, when we last reported the total, CoStar counted 80,000 distressed office, industrial and shopping center properties. The number today is 48% more than 15 months ago.

By property type, CoStar Group currently shows 48,230 office properties more than 60% vacant; the vacancy rate in those properties averages 69%.

CoStar also shows:
* 43,009 industrial properties, averaging 80% vacant;
* 17,730 shopping centers, averaging 65% vacant; and
* 9,518 flex properties, also averaging 65% vacant.

In the banking arena, CoStar Group tallies more than $157 billion in delinquent nonresidential loans on bank books at the end of 2010; $10.4 billion in delinquent multifamily loans and another $57.8 billion in construction and land development loans. Banks reported another $29.2 billion in restructured nonresidential loans.

In addition, banks reported holding more than $10.2 billion in foreclosed nonresidential properties, $2.6 billion in foreclosed multifamily properties and $18.1 billion in construction and land development properties.

In all, distressed CRE bank assets totaled $185.5 billion at the end of the year. That compares to $176.5 billion at the end of September 2009.

The amount of foreclosed upon properties is about 33% higher than it was 15 months ago. Foreclosed upon apartment complexes and non residential properties each has nearly doubled and foreclosed upon construction and land development properties have increased about $4 billion.

In commercial mortgage-backed securities, ratings firm Realpoint reported that the delinquent unpaid balance for CMBS loans totaled $62.09 billion at the end of January. That figure has doubled since September 2009, when it stood at $31.73 billion.

Multifamily properties make up $16.9 billion of total, followed by:
* Retail at $14.9 billion;
* Office, $13.7 billion;
* Hotels, $9.4 billion; and
* Industrial, $3 billion.

By Mark Heschmeyer, Costar