The US CRE markets may be turning the corner on distress, though the specter of many potentially distressed loans looms large. 

A recent analysis of the pace of CRE workouts by Real Capital Analytics showed that more US commercial real estate distress was worked out than arose in Q1—typically a good sign of impending transition in the market. But the firm cautions that the pace of workouts will be crucial in the coming months, especially since deal volume has contracted since the onset of the COVID-19 pandemic and potential buyers have shown disagreement over asset pricing.

"To the extent that there are more loan workouts, information from these negotiations will adjust buyer and seller expectations on prices that can be achieved," RCA's Jim Costello noted in a recent report analyzing 2021 data to date. "The process of price discovery may well work out more in the favor of current owners if the headline figures are correct and we turned the corner in Q1 2021. As fewer distressed loans come to light, there may be few significant discounts on offer. In such a case, buyers would need to step up to seller expectations on prices if they want to place money in the sector."