The level of distress in the US real estate markets continues unabated, with the value of properties in default, foreclosure or bankruptcy more than doubling so far in 2009.
According to research by data provider Real Capital Analytics, $93 billion worth of US office, industrial, retail and apartments are in default, foreclosure or bankruptcy. Troubled hotels and other commercial property types would add at least another $31 billion to the total, the firm said in its latest study on distressed properties.
However, the New York-based firm added that things could get worse – with much of the equity in $1.3 trillion of properties either bought or refinanced between 2006 and 2008 at ”great risk” of being valueless – if it hasn't already been wiped out
The gloomy analysis takes account of the full spectrum of property classes involving investments of “significant size”. But the figure would be higher still if the firm had counted hotels, land and smaller properties in its research.
Real Capital Analytics said loans taken out in 2007 were presenting borrowers with the greatest difficulties. Loans originated in this year are seeing the highest levels of default, while loans taken out between 2004 and 2006 are likely to “remain problematic” as they reach maturity over the next few years.
The report adds that less than one in 10 distressed situations are being resolved. Real Capital Analytics says lenders have been slow to foreclose on assets with the phrase “pretend and extend” a popular part of the US vernacular.