Sales of distressed commercial real estate assets, which have been sparse both in percentage of deals and dollar volume in recent years, will soon spike, Colliers reports, citing MSCI data.

The exact size of any future wave of distressed sales is uncertain, but MSCI estimates that more than $2T of debt maturities are due by 2027. Not so long ago, refinancing was relatively easy and certainly cheap.

Not anymore. Unlike the years after the Global Financial Crisis, interest rates are high, as the Federal Reserve struggles to tamp down inflation. Thus the Fed isn't likely to cut rates to anything close to zero or provide any measure of quantitative easing, the report says.

Interest rates aside, banks are feeling woozy in the wake of the sudden and spectacular bank failures in March, and they are now eager to tighten lending standards.

“Special servicing rates are also on the rise and are higher than delinquencies, a clear indicator of impending distress,” the report says. “A record amount of opportunistic, value-add, and debt capital is waiting in the wings, ready to pounce on what is likely to be a record amount of future distress.”

Distressed sales are likely to trend toward office properties in the near term, Colliers Research Director of U.S. Capital Markets Aaron Jodka, who wrote the report, told Bisnow.

“Numerous properties are facing elevated vacancies, and that makes it more difficult for owners to meet their debt service covenants," Jodka said.

Multifamily will also be an area of distress, he said. Multifamily drove nearly half of all transaction volume in recent quarters, setting sales volume records.

“Properties with floating-rate debt, rising expenses and an underperforming business plan are at risk of distress," Jodka said.

MSCI reported $7.9B of distressed-asset sales in 2022, down from $10.9B in 2021. Only about 1% of the 2022 deal volume was distress-related. The last peak in distressed deal volume was 18.7% in 2010, and by dollar volume, distressed sales last reached a peak in 2011 at $36.2B.