Sandy Monaghan, managing director of New York City-based Cushman & Wakefield's Capital Markets Group, agrees that distress was looking good as the US entered the third quarter this year. "The debt markets were cooperating and even CMBS was beginning to ramp up," he says. "Now all that seems to have taken a pause. We're at a crossroads; nothing I'm seeing indicates jobs are coming back. Corporations continue to be cautious in spending."

He says after the midyear pause, lenders and special servicers started to take a harder stance on loans, cutting back on the practice of extend-and pretend. This sends the market into some turmoil, because without solid lending today, it's hard for people to know how to price the assets.

Now, the US distress market will see a slow grind in 2012, with lenders continuing to leak assets, he says. The one wild card, says Monaghan, is the future CMBS distress level, which as of early November stood at about $80 billion. The delinquent unpaid balance of CMBS could hit $66 billion by the end of December and will likely increase for the next few years. "It's likely this will all correct itself in the next five to seven years," he says.

Steve Pumper, executive managing director of Houston-based Transwestern, says the low interest rates have allowed owners of distress to survive so far. A November report by Delta Associates, a division of Transwestern, detailed that distress volume has slowly decreased from the March 2010 plateau of $191.5 billion. The number of failing banks has also dropped since Q3 2009.

Now, Pumper says, the time has come for lenders to clear their balance sheets. "REO will pick up as leases and extensions burn off in 2012 and 2013," he says.

Mark Grinis, transaction real estate leader at New York City-based Ernst & Young, says he's not seeing signs of improvement in 2012. "There will be no watershed event next year," he says, "though I expect transaction activity to be higher by about 25% from the low volume in 2011."

There's just too much choppiness coming out of Europe, he says, and owners will have to face the facts about their properties. "At some point there has to be capitulation," Grinis says.

"There continues to be a mood of distress, and there will continue to be opportunistic trades. There will have to be some acknowledgement by people to understand what they have, and either decide to live with it or move out."

Scott Farb, managing principal of Bethesda, MD-based Reznick Group PC, sees a bifurcation between the valuations and sales volume of class A assets and loans in primary markets versus the lesser-quality assets in most markets, sending mixed signals about the level of recovery. "Cumulative distressed debt totals are being resolved at a rate of $5.5 billion a month, but it's estimated that US banks are carrying more than $50 billion of REO on their books," he says.

Smaller banks, holding assets below $10 billion, represent an estimated 70% of the commercial mortgages maturing over the next five years, he says. "A sluggish property market could be fatal for them," says Farb. Tom Fink, senior vice president and managing director at New York City-based Trepp LLC, says the disposal will happen with fewer worries than expected. There may be a bump-along market for a year or so, though, he says. "That said, there's plenty of people who are optimistic that they can make money in 2012," Fink says.

So, the answer to the question "Are we there yet?" is still a definite "no," says Spencer Levy, Baltimore-based senior managing director at CBRE Capital Markets. "If you had asked me in June, I might have said yes. The market is very thin from an investor appetite standpoint, and there's a lack of confidence in the marketplace." However, he says just the fact that the industry made it through the recession says something about the strength of the property markets. "There's so much cash sitting on the sidelines, trillions of dollars with a lot on the corporate balance sheets, that once we break this cycle of bad news, we can recover quickly," Levy says. "For example, let's say the Greek austerity package works and the country sees a recovery. A positive news item like that would see a rapid flow to positivity."

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