In a new report illustrating what cities have the most multifamily properties in distress, New York ($1.4 billion), South Florida ($1.1 billion), Houston ($818 million), Phoenix ($766 million), and Las Vegas ($612 million) lead the way. The three metropolitan areas account for $4.7 billion of the $11.5 billion in distressed apartments nationwide, according to Real Capital Analytics.

“The usual suspects came to the top of the list,” says Dan Fasulo, managing director for Real Capital Analytics. “The bigger markets with the big money assets will obviously be at the top of the list because the properties are so much more expensive. As a percentage of overall distress, Phoenix, Vegas, and Florida all fall at the top."

Robert Given, executive vice president for the multi-housing group in the Miami office of brokerage firm CB Richard Ellis, says the bulk of the Florida multifamily deals in trouble aren’t conventional apartments but condos. “In Southeast Florida, since 2003, most of the loans were conversion loans or construction loans,” Given says. “From the second quarter to the third quarter of 2007, there were some apartment deals done for value-add, which could have been pretty highly leveraged, but the vast majority of deals being bought down here have been for conversion and played out that way.”

Further down on the list was San Francisco with $533 million worth of apartments in distress. Much of that is represented by the Lembi family portfolio. Chicago, with $353 million in distressed apartments, comes up last on the top 10. “It didn’t have the same type of run up as other markets,” Fasulo says. “But that’s not to say there isn’t trouble there.”  

Although recent newspaper reports paint a picture of growing distress in the commercial real estate sector, Fasulo thinks that in most of these cities, the apartment industry may have seen the worst pass. “I think residential is starting to run its course,” Fasulo says. “We’re very much at the bottom and starting to work our way up. As far as property types go, apartments are much further along in the distressed cycle. I think we’ve seen the worst of it on the multifamily side.”

Others aren’t so sure. Hendricks and Partners, an apartment brokerage firm based in Phoenix, Ariz., estimates that there are 994 apartments going through foreclosure across the country. Hendricks sees another 2,434 potentially distressed apartments nationally.

“These are properties that aren’t already in a severely distressed state but have the potential to become distressed,” says Nick Ingle, director of capital markets for Hendricks and Partners. “They have loans coming due within 18 months and risk having no capital for refinancing. They will have payment shock occurring in the next 12 months.”

Top 10 Troubled Markets by Volume

New York City Metro
$1.4 billion
South Florida
$1.1 billion
$818 million 
Phoenix, Ariz. 
$766 million 
Las Vegas
$612 million  
Los Angeles
$601 million 
San Francisco
$533 million 
$467 million 
Tampa, Fla. 
$443 million 
$353 million