The actual outstanding distress through the third quarter of 2023 has reached $79.7 billion, though not evenly distributed by property type. As anyone in the industry might guess, the largest single source of distress right now is office, at about $32.5 billion, or almost 40.8% of the total. Retail is in the number two spot: $21.2 billion, or 26.6% of the total. Then comes hotel, 17.9% of all the distress at about $14.3 billion.

The bottom three categories are apartment/multifamily ($7.5 billion, 9.4%), other that includes sectors like self-storage and manufactured housing ($2.5 billion, 3.1%), and industrial ($1.7 billion, 2.1%).

However, the real concern for investors, developers, and owners should be what might come. “Potential distress is indicative of financial stress that, if not reconciled, has the potential to become full-blown financial trouble,” MSCI wrote. But the biggest danger isn’t office but multifamily, at $65.7 billion, or 30.4% of the $215.7 billion total.

But the possible exposure of office is still enormous, at $50.3 billion or 23.3%. Hotel’s $31.1 billion/14.4% comes next, after which are retail ($30.7 billion, 14.2%), industrial ($26.7 billion, 12.4%), and other ($11.3 billion, 5.2%).

“The composition of ownership for distressed assets shows that one-third of the balance of distress is tied to assets owned by private capital, while another third is associated with institutional investors,” they wrote. “Rather than by value, which skews towards institutional ownership, a look at the ownership composition by the number of assets indicates that private investors own 50% of the assets currently classified as distressed.”

Source: “Distressed CRE Reaches Ten-Year High