US may have $106bn of potentially troubled real estate assets

Already $4.5bn worth of properties in the US have reverted back to lenders as real estate owners struggle to contend with the credit squeeze and the economic downturn. New York, LA and Las Vegas are worst affected areas.

There is more than $106 billion of distressed and potentially troubled real estate assets in the US – with $4.5 billion of property already handed back to lenders, according to new research by data provider, Real Capital Analytics.

Identifying properties that were distressed and potentially troubled, RCA said $4.5 billion had become real estate owned (REO) or reverted back to the lender, while another $21.2 billion of assets were in a “truly distressed” situation, where the mortgage was in default, the owner bankrupt or where the property had been foreclosed.

A further $80.9 billion of assets, or more than 3,700 properties, was “potentially troubled” with maturing loans in 2009, owners in some financial duress, tenant bankruptcies or developments that had stalled or “failed to live up to expectations”.

Development projects had seen the greatest number of assets returned to lenders, with $7 billion of projects REO. A further $5 billion is potentially troubled, RCA, which is now studying distressed properties, said.

The retail sector in the US held the most potential distress, with $23.5 billion of potentially troubled assets compared to $4.7 billion of assets that were REO.

Real estate investment trust and the US’ second largest mall owner General Growth yesterday said it had extended, until February 2009, $900 million of loans that had been due last week, on two Las Vegas properties, the Fashion Show and Palazzo malls.

RCA said Las Vegas had $6.6 billion of “distressed” properties, in which assets were REO, in default or foreclosure, and “potentially troubled” assets, where loans were set to mature next year, owners were in some financial distress, faced tenant bankruptcies or where developments had stalled or underperformed. That $6.6 billion included $4.2 billion of assets which were actually distressed – the highest distressed level in any US market. Overall, Las Vegas had the third highest volume of distressed and potentially troubled assets.

New York had $12 billion of distressed and potentially troubled assets in the US, the highest rate of any metropolitan area. Of the $12 billion, $3.4 billion was in already in a distressed state. Los Angeles came in second, with $11 billion of distressed and potentially troubled real estate assets, including $2.9 billion which was in a distressed state.

RCA said in its first report on troubled assets: “As opportunistic funds proliferated, potential investors grew concerned that there would be too much capital competing for the small number of distressed situations that had emerged. Since September, though, a wave of defaults and foreclosures has hit the commercial property market and the magnitude of the situation is becoming clear; there is no lack of opportunities for the distressed property investors.”