Part of the restructuring deal reportedly allows the properties' owner access to funds reserved for tenant improvements and leasing commissions, the lack of which had hindered attempts to attract and retain tenants at the five properties. Aside from these large troubled downtown assets, there are also several distressed properties located in the suburbs, which many investors are monitoring for acquisition opportunities, either directly from owners or lenders, or via note sales. Within the CMBS sector, office delinquency remains relatively low at around 4% of the total debt outstanding, but it is likely to rise this year

as vacancy continues to escalate and owners cut rents further to remain competitive. Over the past two years, Chicago metro area office vacancies have climbed 330 basis points to 18.7%, while rents registered declines of approximately 5%.

Hospitality falls second to the office market in total distressed dollar volume but posts the highest CMBS delinquency rate of all major sectors. At present, roughly 28% of the CMBS debt backed by Chicago-area lodging properties is delinquent and more than one-quarter of the loans have slipped to debt-service coverage ratios of l.Ox or less, suggesting more problems to come. Properties purchased in 2006 and 2007 account for a large share of the delinquency, since fundamentals and values have deteriorated significantly in the years since. Year to date, RevPAR in the Chicago metro area sits 30% below levels reported during the same period in 2008, and despite some improvement in early 2010, the overall occupancy rate 51 %-remains 640 basis points lower than it was two years ago. The Allerton Hotel, which last traded in 2006, is one of the largest downtown hotels to encounter problems. A deal has reportedly been reached for an investment group to acquire the debt on the landmark property with the intention of taking control of the asset, but the outcome remains uncertain.

Several retail developments that were under way when the recession hit have encountered difficulties, though most of the projects remain in limbo due to lawsuits or bankruptcy filings. Of the existing troubled retail assets, the majority are smaller strip centers, though a few larger properties appear on the list due to operational issues, challenges securing new financing or some combination of the two. While there are several properties in foreclosure, only a handful have been reclaimed by banks to date, and few retail properties are changing hands throughout the Chicago marketplace. Of the retail REO deals, one of the largest involved a well-occupied, 260,000-square- foot shopping center in Elgin, which a bank recently sold for $24 million. The price tag on the property reflected a significant discount to the outstanding debt, but the transaction nevertheless shows that demand indeed exists for larger retail deals even as forecasts call for further occupancy and rent reductions this year. Multifamily properties account for approximately 12 % of the distressed dollar volume in the Chicago metro area. Troubled assets range from small older properties to failed condo projects and newer apartments that were slow to lease up. While a few REO deals are clearing the market at significant discounts, there are a growing number of transactions involving some level of distress or a value-add component. Well-priced apartment assets in the Chicago market are being met with healthy demand, particularly from private in-state investors, leading to an uptick in transaction velocity in both the city and suburbs over the past year. The increased level of distressed deals and declining NO Is have put pressure on pricing, however, with the median price per unit in the city down 25% year over year and the median price in the suburbs registering a 12% decline over the same period.

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