In some markets, such as New York and Washington, D.C., transactions have picked up noticeably this year and cap rates are falling. But in other markets, there are still a lot of distressed assets trading. In fact, some markets are seeing more distressed assets trade than conventional ones.

And that trend could continue into the next couple of years. “We’re going to see more [distressed sales] hitting in the next year or so, but it won’t hit 100 percent [in any market],” says Norm Miller, vice president of analytics for Bethesda, Md.-based CoStar, a provider of information, marketing, and analytic services to commercial real estate professionals.

Here are the five markets CoStar says have the highest percentage of distressed transactions:

Atlanta: 72 percent

CoStar isn’t the only group that shows Atlanta is having problems. Bill Shippen, a principal in brokerage firm Apartment Realty Advisors’ (ARA) Atlanta office, tracks the transactions in the Atlanta market. Right now, he says 42 of the 52 assets on the market are lender owned or controlled. Though owners in Atlanta are having occupancy issues, Shippen says the problem isn’t necessarily a fundamentals issue. Instead, it’s been caused by a lot of trading in 2004 to 2007, when prices were inflated. “It’s not that our fundamentals are worse,” he says. “We’re a fluid market and a high number of our stock trades every year.”

And a high number of those deals were CMBS loans which have come back to hurt the borrowers. “CMBS loans tend to be at a higher loan-to-value than non-CMBS loans,” Miller says.

Basically, lenders have figured out what they have, and they’ve decided to put those assets on the market. “Conduits were reluctant to sell the things they took back last because they didn’t know what they had,” Shippen says.

Jacksonville, Fla.: 62 percent

Jacksonville’s problem is oversupply. Whether it’s single-family homes, condos, or apartments, the market is overbuilt. Add an unemployment situation where numbers are hovering around 11 percent, and you have staggering vacancy rates—reaching as high as 20 percent at some properties. Concessions are reaching three months. John Saoud sees this situation from two angles. He’s a senior associate at Colliers Dickinson, a brokerage firm in Jacksonville, and his family owns some smaller apartment units in the area. Saoud estimates that apartment values have dropped 25 percent to 30 percent.

“We’re having to compete with too many distressed assets,” Saoud says. “There are too many condos and single-family homes.”

A recent Jacksonville Business Journal story quoted stats from New York-based Trepp showing that one-quarter of the CMBS borrowers in the city were more than 60 days delinquent on their loans. But so far, a lot of distressed assets are still with their lenders.

“You have a lot of banks holding onto stuff,” says Gary Montour, senior vice president at Colliers Dickinson.

With 60 percent of its asset sales already of the distressed variety, that’s a scary thought indeed.

Stockton/Modesto, Calif.: 63 percent

Stockton and Modesto aren’t alone in the Central Valley of California in seeing high amounts of distressed trading. Forty percent of Sacramento sales are distressed. Stockton sets itself apart though high unemployment (around 17 percent) and a relatively low number of trades. That’s spelled disaster for a lot of the owners who bought Class C assets at high prices in the mid-2000’s. “The increase in vacancies and small decline in rental rates were enough to cause smaller private owners to have trouble paying their debt,” says Mark Leary, a principal with ARA, who covers the Sacramento and Stockton areas.

But on the other hand, when Leary has sold a higher level asset such as the 128-unit South Shore, what he describes as a high-B product at an A price, he fetched $90,000 a unit—a good price for that market. “Collectively on Class Bs that are 100 units and larger, things are improving,” he says.

That makes owners of these properties even less likely to sell, “Historically, in both of these markets, there are not that many trades,” Leary says.

Las Vegas: 51 percent
It’s no surprise to see Vegas on a list of the most distressed transactions. In fact, South Florida (36 percent) and Phoenix (40 percent) aren’t as bad as Vegas (51 percent).

Part of the story in Vegas, of course, is overbuilding in both the single-family and the condo market. That’s hurt rental owners. “The operating income of apartment companies haas been dramatically impacted by the volume of homes that became rentals,” says John Restrepo, a principal of Restrepo Consulting Group in Las Vegas.

Those rental problems have put a lot of stress on deals done in the mid-2000’s at the height of the real estate market bubble. “Of all of the sales over the past 12 months, nearly all of them were purchased in 2006,” says Chris Bentley, owner of The Bentley Group Real Estate Advisors in Las Vegas.

Bentley and other observers say CMBS loans haven’t been a huge problem—yet. “The CMBS problems haven’t materialized yet since those are in the workout phase,” Bentley says.

But once that happens, Bentley thinks things could get even worse. “We actually think the distress will get higher,” he says.

Tampa/St. Petersburg, Fla.: 49 percent
Though one of the largest MSA’s in the Southeast, Tampa hasn’t been spared in the downturn. Tampa was undergoing a construction boom when the housing market crashed. When that happened, many workers, including apartment dwellers, were left searching for work.

Apartment owners, who saw their investments drop anywhere from 25 percent to 30 percent, are also losing residents. “You can’t not take 15 to 20 percent of the market, which is what construction was generating, and not feel it,” says John W. Stone, director for multifamily investments at Colliers Arnold Commercial Real Estate Services in Clearwater, Fla.

But Stone does see rent slides easing, concessions slowing, and occupancies even going up. He’s hopeful that these signs could help ease some of the distress in the Tampa Bay area. That feeling is buoyed by what he says is a diverse business climate in the city. “It’s better than it was a few years ago,” he says.

Orlando, with 46 percent of its sales being distressed, is right behind its Florida neighbor in percentage of distressed transactions. While Tampa has a lot of “back office” type jobs, according to Stone, Orlando has one primary economic driver. “The city of Orlando is extremely influenced by Disney,” Stone says. “As Disney goes, Orlando goes.”