Also, the Northeast, Southeast, Southwest and West all had more distress in terms of total volume, and only the Northeast had fewer distressed loans than the Midwest (a less than 100-asset difference, according to RCA).

Most Midwest cities are not nearly as overwhelmed with distress as Chicago, in terms of the relative dollar value, reflecting stability in the rest of the region, or lenders acceptance of a lack of interest and willingness to work out properties instead. RCA ranks the Detroit area second after Chicago, with 184 properties worth about $3 billion underwater, and the rest of the Midwest's troubled assets drop significantly after counting its two largest cities.

There were a few Midwest firms in 2010 that sought to capitalize on Chicago's distress by opening new divisions specializing in receivership. Hilco Real Estate LLC, based in Northbrook, IL, created Hilco Real Estate Managed Asset Resolutions and hired Boston-based industry expert Jerry Hudspeth to run the division. "Lenders and other debt holders in increasing numbers are turning to asset management and servicing groups to augment their internal staff s in workout and resolution matters," Hudspeth says.

He says it's clear Chicago will have its share of distress, though the Midwest is not as bad off as other areas of the country. "We're seeing more assets coming onto the market there," Hudspeth says. "There's capital looking for deals, but they're looking for the best deals and are looking to buy smartly, not in bulk." Ross Glickman, CEO of Chicago-based Urban Retail Properties, also joined in by forming Urban Receivership Services, a firm designed to handle properties for lenders. The first assignment was the 477,000-square-foot Village Mall in Danville, IL, assigned by the court to Urban on behalf of the lender and the owner, Howard & Mills Inc.

Glickman's firm is also looking to buy distressed retail assets, he says, as there will be a glut on the Chicago market for some time. And after ending extensions, lenders are now demanding keys back.

"I see the banks becoming inflexible, with a lot of properties going into the hands of special servicers," Glickman says. "I don't think we've hit the bottom, there's a little room left, with a lot more retail, in the form of class B and C malls and strip centers hitting the market in the next six months."

One product that is seeing fewer receivership assignments has been apartments, says Terry Schwartz, principal of Bingham Farms, MI-based Dover Realty Advisors LLC. His firm has been working Fannie Mac receiverships in Kentucky, Ohio, Indiana and Michigan. "This time last year, we were working non-stop with 1,500 units going through the process. This year we've got only about 500 units," he says.

The past year's resurgence of the multifamily market has likely encouraged borrowers to be aggressive in getting refinanced, Schwartz says. "We thought we'd have more loans maturing this year and next, but maybe people are seeing that the market is getting stronger and feel like they can squeak by," he says.

Brian Sedlak, a partner with Jones Day in Chicago, says there are some workouts still occurring where a borrower is trusted and acts in good faith. Lenders know that the void still exists between what they want for the property, and what buyers will pay, says Sedlak. "If the values are too far apart, and they feel like the borrower has been a good partner, there will be more willingness to work out an extension deal," he says. Sedlak represents large financial institutions in these restructurings and foreclosures, such as Corus Bank, Anglo Irish and Wells Fargo, including work for the latter on the $60.5-million sale of distressed debt on the Allerton Hotel in Downtown Chicago to Bethesda, MD based DiamondRock. He agrees that the peak of debt maturities for Midwest properties is not likely to occur until 2012 or 2013.

"All the major buildings even in Downtown Chicago are facing some type of distress, and there's even some hotels having issues," Sedlak says. "There will be more opportunities in the next few years to buy distress debt in the city."

Randy Podolsky, managing principal of Riverwoods, IL-based Podolsky Northstar-Corfac International, has been cruising his firm through the recession by taking on court-appointed receiverships in bunches throughout suburban Chicago. With experience in the 1990s handling similar distressed properties, he's gained the business again, taking over the management and sale of industrial, retail and office sites. Podolsky says he continues to be bearish about the city's distressed future. "We're seeing lenders taking action and taking control of the assets," he says. "Unfortunately, even though there's been good activity and people are looking at space again, we don't see lease rates or pricing changing dramatically. There are good pockets where values are bolstering, but we're not back to where we were before 2007 by any stretch of the imagination." He says jobs are the number-one impediment to a Chicago recovery, especially with some municipalities even threatening bankruptcy.

There are ways to get through as an owner or a buyer, Podolsky says, believing that there's still more than two years of opportunities left in the Chicago market. The owner needs to realize that his property is not worth what it once was. The buyer for his part, has to be ready to close the deal, to beat out competition and convince a servicer to pay attention to what could get a property sold.

"Be prepared with a cash offer," he says. "You need the least number of roadblocks. Lenders are trying to get rid of properties fast or looking at how best to market a property and take time to do it. Most want to move it out the door." However, he says that buyers shouldn't continue the mistakes that led to the downturn. "Don't overpay, think about what rents are and whether the property can be leased out," he says.

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