Within the Inland Empire's commercial real estate market, retail accounts for the most significant amount of distress, as many developers built ahead of rooftops that now sit largely vacant or failed to materialize altogether. Furthermore, investment activity intensified dramatically from 2005 to 2007, a period when prices were at or near peak levels, high leverage loans were commonplace and underwriting criteria was most lax.

More than half of the outstanding CMBS debt in the Inland Empire market is backed by retail properties, and about three-quarters of this debt was originated between 2005 and 2007. In the CMBS segment, foreclosures/REOs are more typical than modifications and extensions in the Inland Empire retail sector. Given the significant number of delinquent CMBS retail loans in the market, more discounted assets are likely to become available to investors this year.

The local housing downturn will continue to adversely impact the Inland Empire apartment market this year, though operational performance will vary significantly by location. A glut of foreclosed single - family homes have flooded the market in recent years, and investors have turned many of these properties into rentals. Competition from discounted shadow rentals has been especially strong in the Southwest Riverside County, Perris and Palm Springs/Palm Desert sub markets, areas that also account for outsized shares of apartment distress.