Distress in real estate is prevalent in industry chatter and in the headlines, but when it comes to assets actually changing hands, it still isn't much of a factor.

In fact, less than 2% of recent commercial real estate sales in the U.S. have been of distressed assets, a number that is likely to rise, Jim Costello, the chief economist at investment research firm MSCI Real Assets, said on this week's episode of Bisnow Reports.

MSCI data suggests that there were $80B of commercial real estate loans in distress last quarter. Another $215B worth of loans are at risk of distress, and Costello said there is a whole other category of buildings that may be underwater.

But the way that distress shakes out after this cycle will be different than after the Global Financial Crisis, when private equity firms snapped up quality buildings on the cheap. 

"It was a bunch of suits from New York flying into town, picking up an asset for pennies on the dollar through a note sale, putting a proper level of debt on it and hopping on a flight back home and just waiting for the markets to stabilize," Costello said.

"This time through, it's a dead mall outside of Cleveland, it's an empty office building in Midtown South. ... These are buildings where the income is challenged, and the people who have been buying this stuff have been much more in the local developer-owner-operator type of world. It's really the type of people who know how to swing a hammer, and that's really what it's going to take for some of these distressed assets this time to make things viable."

Bisnow’s audio series, Bisnow Reports, examines every facet of the international commercial real estate industry — from the murky future of retail and office to real estate’s reckoning with diversity to the effects of climate change on the built world, and so much more. You can subscribe on Apple Podcasts, Spotify and Amazon Music, or click below to listen in your browser.