Apartments, Industrial Hold Least Distress

The cloud of distress is slowly dissipating over Southern California’s sunny skies, although some areas of concern still present challenges to real estate owners. The supply-constrained apartment sector and flourishing industrial property market present the least challenges to owners and financiers, while some retail and office assets, particularly in the Inland Empire and Orange County, have bigger hurdles to overcome. While these distressed assets present challenges to current owners and banks, they also present opportunities to buy properties at deep discounts.

While the US multifamily sector continues to see the highest rate of distress among the four major product groups, in dense and supply-constrained Southern California, the market has been the best performer and continues to exhibit the lowest levels of distress. Among the four major metro areas in SoCal, the Inland Empire has the highest multifamily vacancy rate, at slightly above 5%, with San Diego exhibiting a low 3.2% vacancy. The extremely tight rental market has resulted in significant rental growth over the past 12 months, which has helped many properties that were teetering on the verge on delinquency improve their fundamentals and move their loan status to performing.