WEST

The $55 billion of distress in the West includes more than $11.3 billion of office, $3.66 billion of industrial, more than $7 billion of retail, nearly $6.8 billion of apartments, $14.9 billion of hotels, $9.5 billion of development parcels and $1.7 billion classified as "other." In addition, Delta points out that the Los Angeles- Orange County metro area "now has the highest volume of stressed [potentially distressed] real estate at $4.2 billion," based on data from RCA. Delta also cites figures from Trepp, Morningstar and the FDIC in its analysis. The Delta report explains: "While the volume of distress is significant, also consider the looming volume of stressed property. These properties have characteristics of concern in the short term-maturing loans, bankrupt tenants, under-performance, financially troubled owners or other significant obstacles that could potentially lead to distress in the future." However, with every sign of impending trouble, the market seems to offer a sign of improvement. In a mid-year webcast report on the retail market that was reported on GlobeSt.com, Marcus & Millichap cited improved fundamentals and signs that retail is emerging from its slump. Hessam Nadji, managing director of research and advisory services at Marcus & Millichap, said during the webcast: "Online sales are pressuring retailers, but at the same time, traditional store-based retail is also recovering nicely."

SOUTHEAST

The market with the second-highest tally of distress, the Southeast logs in at $37.36 billion, which includes $5.8 billion of office, $1.8 billion of industrial, $6.2 billion of retail, nearly $10.5 billion of apartments, $5.3 billion of hotels, $6.9 billion in development parcels and $623 million of "other." As Delta noted in a special look at the Southeast in its latest report, the volume of distressed real estate in South Florida, one of the hardest-hit areas within the region, has fallen from about $9.1 billion in January 2010 to about $8.4 billion in June 2011. Nonetheless, Delta said, "This remains the third-highest volume among the 10 markets that we survey."

SOUTHWEST

The $29.66 billion of Southwest distress includes nearly $8.5 billion of office, more than $1.3 billion of industrial, $4.5 billion of retail, nearly $6.9 billion of apartments, $3 billion of hotels, $5.3 billion of development parcels and $1.1 billion "other." The relatively small total for industrial distress reflects a national phenomenon: Industrial is the least distressed of the major property sectors, accounting for only about $10.4 billion of the more than $180 billion in US distress, according to RCA. Nonetheless, enough industrial distress is available to present some appealing investments for those willing to dig.

NORTHEAST

The Northeast, with its $26.19 billion of distress, includes nearly $9.1 billion of office, more than $1.8 billion of industrial, $1.8 billion of retail, nearly $8.6 billion of apartments, $2.7 billion of hotels, $1.9 billion of development parcels and $131 million "other." The Northeast illustrates the paradox of how the investment market is recovering while that distress is growing. Although trophy office properties and other quality assets in top-tier markets like New York City have been commanding high prices and low cap rates as the investment market recovers, Delta notes that New York City "has by far the largest share of the national CMBS delinquency total among large metro areas," with a 9% share of CMBS delinquencies. MIDWEST

The Midwest's $20.87 billion in distress includes $4.8 billion of office, more than $1.6 billion of industrial, $3.9 billion of retail, nearly $3.2 billion of apartments, $3.9 billion of hotels, $2.8 billion of development parcels and $468 million "other." Some Midwest-based experts in distress provided a window into the future of that market at a RealShare Chicago conference in June. A panel on distress at the conference debated whether the extend-and-pretend policies have worked but agreed that lenders are changing their strategies. The future of distress in the Midwest, according to the panelists, lies in note sales and foreclosures as opposed to extend-and-pretend.

MID-ATLANTIC

The Mid-Atlantic logs $11.9 billion of distress including $3.6 billion of office, more than $583 million of industrial, $2.3 billion of retail, nearly $2.5 billion of apartments, $2.3 billion of hotels, $645 million of development parcels and $28 million "other." Although the region can boast the smallest volume, the Mid-Atlantic coincidentally plays an outsized role in the future of distress because it is home to the Federal Reserve. One of the big concerns these days about the Fed is what will happen when it phases out QE2. As recent Globest.com articles and blogs have pointed out, quantitative easing has far-reaching implications for commercial real estate because it affects interest rates and other facets of the market.

The forecast for the US distress sector is tied to the overall investment market, as was pointed out in an audio discussion of the latest RCA figures. The discussion featured the firm's president, Bob White; managing director Dan Fasulo; and editorial director Peter Slatin. In the discussion, called Real Capital Rewind, the three pointed out that buyers have returned to the investment sales market in a trend that "is especially potent in the distress arena." These players have made acquisitions in every property sector, although the largest proportion-40%-has been active in multifamily, and a number have closed acquisitions in multiple sectors.

Another trend that bodes well for the distress market is that lenders have been active in workouts in an effort to clean up their books, the RCA discussion noted. However, it pointed out that lenders today are opting for permanent solutions like note sales and foreclosures, rather than the temporary solution of a loan modification. Delta's analysis also notes that "the real test of the plateau of distress will come in the next 12 months, with about $300 billion in loans coming due and delinquency rates possibly edging up again. A meaningful decline in distress will not occur until 2012 or so, and only then if interest rates cooperate."

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