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Distress Pipeline About to Bulge

The workout pipeline should slow as we kick off the fourth quarter, caused mostly by the loss of confidence in the economy and CMBS success-both of which…

By Robert Carr - Midwest Region Editor for GlobeSt.com and Real Estate Forum | Updated on December 09, 2011

The workout pipeline should slow as we kick off the fourth quarter, caused mostly by the loss of confidence in the economy and CMBS success-both of which have taken some serious hits of late. However, if the economy eventually improves, increasingly a big if, all distress could be worked out by the end of the decade. The first half of this year went well, with the commercial real estate markets seeing sales volume of more than $91 billion, double the first half 2010. This success had been transitioning into distress workouts. Lenders were more open, borrowers were able to bid on their own notes and valuations increased, especially in the core markets. Life was grand.

However, because of the massive amounts of debt taken in the past decade, and the fact that secondary markets still haven’t recovered, the workout pipeline bulged with more coming in. Ann Hambly, president and CEO of Grapevine, TX-based First Service Solutions, tells DAI that there is a lot of curiosity about the huge numbers of loans coming into special servicing. What had been a 1% default rate in CMBS rose to 11% a year ago, she says: “While the can was getting kicked down the road, the defaulted CMBS stacked up and got higher and higher.”

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