Can You Spot Quiet Distress Before the Market Does? Real Estate Distress Signals in 2026

“We’re not seeing anywhere near 2008 levels of distress, but there has been a tick up in distressed properties.” — Daniel Roccanti

In this episode of Your CPA’s Take on Real Estate, Daniel Roccanti and Kyle Paxton dig into distressed real estate signals across today’s market, from CMBS delinquencies to deferred maintenance, and explain why the most important warning signs rarely make headlines.

Roccanti and Paxton compare today’s environment to the 2008 downturn and walk through where distress is showing up across asset classes including office, multifamily, retail, hospitality, and industrial. They cover how properties come to market through direct sales versus loan or note purchases, how investors are sourcing opportunities through relationships rather than public listings, and the risks buyers need to evaluate before acquiring a distressed property.

Resources

• Your CPA’s Take on Real Estate
• Your CPA’s Take on Real Estate YouTube Channel
• Watch: Can You Spot Quiet Distress Before the Market Does?

Full Transcript

[00:02] Daniel Roccanti: Welcome to Your CPA’s Take on Real Estate. I’m your host, Daniel Roccanti, back again with Kyle Paxton. Today we’re going to talk about distressed properties in today’s market. When you’re dealing with real estate, everyone is always talking about distressed properties. It’s always a big indicator in what real estate is doing, and great buying opportunities for anyone looking to buy.

[00:27] Daniel Roccanti: The whole BRRRR movement all came off physical distressed properties. You buy, you renovate, you rent, and then you’re refinancing. Today we’re going to talk a little more on the commercial side, but what does distressed properties look like in this market? Physical property distress is pretty wide and very specific to your property.

[00:49] Daniel Roccanti: But what really gets people excited is when more financial, operating, or market distress starts coming up. And we’re not seeing anywhere near 2008 levels of distress, but there has been a tick up in distressed properties, and in certain situations you definitely want to make sure you’re looking at your opportunities here.

[01:11] Kyle Paxton: Yeah, Daniel, like you said, not quite 2008, right? But we’re seeing the distress show up in debt maturities, recapitalization, very specific property types that we’ll get into a little more. We’ve done videos in this series around refinancing, recapitalizations happening a lot in 2026. Finances are getting scrutinized.

[01:32] Kyle Paxton: My conversations with bankers align with that. And so when we’re defining distress, I want to anchor us in, we’re talking about all facets: payment default, maturity default, negative cash flow, a broken capital stack, forced recapitalization, refinance issues, or just general lender pressure, which we’re seeing a lot of.

[02:02] Kyle Paxton: I think really where we want to take this conversation is focusing on where we’re seeing the distress, what asset classes we’re talking about, loan sales and property sales, sourcing opportunity, and then risks that our buyers are facing as they’re shopping around in 2026.

[02:26] Daniel Roccanti: And so like we were saying, it’s not 2008 levels, and I don’t think it’ll ever get there, but it does come in waves, and I do think 2026 offers some opportunities. What we’re really looking at here is what are the pressure points. One of the bigger pressure points we’re seeing right now is really coming to that capital stack.

[02:48] Daniel Roccanti: Just with the refinancing wave that’s coming, with the increase in interest rates, a lot of owners and operators of real estate right now are really having a difficult discussion. “I have properties, it was doing well, I got to refinance.”

[03:15] Daniel Roccanti: “The numbers aren’t working like they used to.” Or maybe operational costs are increasing, rents are staying low or flat. There’s a lot of pressure being put on owners right now, and they probably have properties where the numbers are either a lot lower than what they used to be, or might not even be working at all. “What should I do next? Can I make this property work?”

[03:45] Daniel Roccanti: Or is this now a conversation of maybe I should offload this property. Anytime you have that kind of pressure, there are opportunities for buyers out there, because a lot of people are on the sideline looking, and there are opportunities out there.

[04:06] Daniel Roccanti: You just might not be able to be like ’08 levels where they were just everywhere. You might have to put a little more time and effort into finding these opportunities.

[04:06] Kyle Paxton: Daniel, to your point, you kind of have that trifecta where a lot of the source of this conversation comes with just properties being penciled in a lower rate environment. We have a higher rate environment, rents are lower, costs are increased, kind of creates a perfect storm there.

[04:28] Kyle Paxton: And then we talked about roughly twenty percent of borrowers having to refinance this year in the commercial space, and add that to those that extended in 2024 and 2025, extensions run out, and you’ve got to get creative here.

[04:47] Kyle Paxton: That’s really setting the environment of what we’re talking about, that perfect storm operating environment that we’re seeing in a lot of the markets we pay attention to, across asset classes. Let’s dive into a little bit where that distress is actually happening. Daniel, what are you seeing? Where should we focus our conversation on, where we’re seeing the distress appear?

[05:19] Daniel Roccanti: Yeah, so distress right now, it’s kind of in pockets across the country. It’s not even. And the distress sometimes isn’t even public, and that’s very important to understand. Public distress, everyone sees it. A lot of real estate right now isn’t very public, it’s more private distress. It takes a little more effort to find that distress.

[05:39] Daniel Roccanti: Some of the key areas right now where we’re seeing distress: when a property has a commercial mortgage backed security right now, that’s a lot of properties where the distress visibility is sooner, just because that’s more securitized debt, its reporting is more transparent, so we’re seeing things like that.

[06:04] Daniel Roccanti: A lot of commercial real estate, like office and multifamily, are in this space, so we’re seeing a lot more uptick with delinquencies. But it still depends on the type of property, the location, the sector. There’s an uptick in delinquencies right now with CMBSs. We talked a little earlier about maturities coming up with a lot of our loans, and they’re having to refinance.

[06:30] Daniel Roccanti: So what does this mean for the borrowers who are unable to refinance at the same level? Or if they’re getting extensions, and now their extension is up, and now the lender has to decide, “What are we doing here? Am I going to give you another extension?” Or now maybe they’re looking to sell, or figuring out other ways.

[06:53] Daniel Roccanti: Or maybe it’s just time where the deal isn’t working anymore and they need to sell the property. Recapitalization is another one. If you can’t get traditional lending, now you have to go back to your investors and ask for more money, or find a creative way to bring in preferred equity or mezzanine debt or capital.

[07:12] Daniel Roccanti: When that happens, that’s a big ask for your investors, and maybe your investors, it’s time for them to want to get out. But the ones you don’t hear all the time about is the quiet distress. We talked a lot about loans and financing, but sometimes it’s just owners have to cut distributions.

[07:31] Daniel Roccanti: If I’m not getting as much money, this isn’t a good investment, give me my money back, I want to find a better deal. You start seeing deferred maintenance. This is a huge one we see on a lot of properties.

[07:46] Daniel Roccanti: The moment the money starts getting tight, I’m not willing to go out there and start spending on all my maintenance, so you start seeing deferred maintenance start piling up. Then you see vendor balances unpaid, loan covenants being breached, capital calls investors don’t want to pay. There’s a lot of quiet distress out there that’s not quite hitting the public, but it is a distress in the market right now that could provide some opportunities.

[08:10] Kyle Paxton: Daniel, those are very good points. I think the quiet distress is where we really want to pay attention to, because that does bring opportunity, right? I can see some quiet distress in my 90-day AR in these asset classes we’re talking about. I see some common themes in the 90-plus day AR that I’m sitting on.

[08:29] Kyle Paxton: It’s one of those things where, to what we talked about, maybe rents are lower than projected, the higher rates are driving, amongst all the other economic pressures we have going on, higher costs. And then you start seeing some of these things kind of whittle away.

[08:51] Kyle Paxton: Sometimes we see investors that are just waiting for that public listing, they might miss the deal. This is a networking game, right? Real estate is so much of a networking game, and getting in before that public listing hits, a lot of our clients and what we’re seeing in the market are really going after creative funding.

[09:16] Kyle Paxton: Being in tune with that and understanding how you fit into that creative funding environment can really give you an advantage as a real estate investor, either looking to increase your portfolio or get in for the first time. It’s out there, we’re seeing it, and those quiet signs we’re looking for can really give you a leg up in this current environment. Take us a little deeper into asset classes. We’ve talked about office and multifamily. Daniel, you want to take us through office and give an overview of what you’re seeing there?

[09:48] Daniel Roccanti: Yeah, we’re going to go over what asset classes are kind of at the most risk right now for distress. But I actually look at it as, where is the most opportunity?

[10:04] Kyle Paxton: Look at that. Glass half full kind of guy.

[10:04] Daniel Roccanti: Let’s go. So it might be a risk for the potentially the seller, but for buyers, these are opportunities. And we’ve talked about these classes a lot, but the first one is always going to be office. Office has always been in a weird space. Since COVID, it has come back a little bit, but it’s always been kind of divided here.

[10:22] Daniel Roccanti: The lower quality office in weaker locations, they don’t do well, they remain under pressure. These are going to be ones where there’s going to be a lot of distress. Your Class A, your beautiful buildings with high amenities and things like that, they’re performing very well compared to the lower end, more commodity offices.

[10:54] Daniel Roccanti: I’m seeing this divided market right now, but there’s a lot of vacancies. You’re seeing in 2025 office vacancies went up to about 14%, around the country. That’s a pretty high vacancy for an average. It really comes down to, what is this actual property? Where is it located? This is a good time to start looking for potential opportunities because it all depends on your city or your location. Is downtown thriving? Is it not thriving? Are people moving more out to the suburbs? Is office space moving out to the suburbs?

[11:33] Daniel Roccanti: This is the time to find where that gap is, “this property is distressed, maybe there’s a great opportunity there,” and office space is one of those areas where there’s potentially a lot of opportunities.

[11:51] Daniel Roccanti: The second one is multifamily. I feel like anyone in the commercial real estate space, it’s always office space and multifamily. Multifamily just comes in waves. This isn’t one of those things that’s broadly broken, but a lot of supply came into the market recently, in some areas more than others, especially down here in the South, in the Sun Belt.

[12:16] Daniel Roccanti: A lot of multifamily came in here, so it comes in waves, and we’re at that top wave right now, where we’re overbuilt. People love multifamily because you’ve got to have somewhere to live. Like office space, we can make cuts if we have to, we can work remote, we can find ways. But at the end of the day, we all have to have somewhere to live.

[12:36] Daniel Roccanti: We’re just in one of those dips right now where we have a lot of supply, rents are staying flat or even decreasing a little bit. Multifamily, the numbers aren’t matching as well, so you can see a rise in costs like insurance and taxes. Multifamily right now is a potential hotspot for distressed properties, because we’re seeing multifamilies where the occupancy is still like 95%, that’s really good occupancy.

[13:09] Daniel Roccanti: The numbers don’t even work. If you can’t work at almost full occupancy, that’s a problem, and you’re probably looking at a property that’s stressed, where maybe the owners are looking to offload this, and it might be favorable for you.

[13:09] Daniel Roccanti: Some other areas with potential: retail. It’s always been bifurcated. A grocery anchored, necessity based center is always good. If I find a shopping center with a Publix, that’s always good, everyone wants those, those will always do well, just because that’s what the world always needs. Some areas like malls, RIP, you guys were great when I was in middle school, but no one’s going to malls anymore, right?

[14:02] Daniel Roccanti: Outlets, things like that, these are a lot more exposed areas, and we’re seeing a lot of delinquencies up to more like 12% in these kind of areas recently. There is potential in the retail market, it’s just very bifurcated on what type of retail it is, but there could be some opportunities there for turning it around.

[14:24] Daniel Roccanti: Then just high level, hospitality is another one that’s kind of all over the place. When you’re dealing with hospitality, it’s completely different than all the others because you went from doing year rents mostly to now doing daily rents. The revenue resets quicker, nightly basically, so you never know where it is. But surprisingly, hotels and things like that, delinquency has been up, so that’s also another area with potential.

[14:45] Daniel Roccanti: The last one is industrial. Industrial was doing great after the pandemic, just because of how everything moved back to shipping and things like that. This is where a lot of people put money in.

[15:06] Daniel Roccanti: But just like anything else, when everyone starts piling into one industry, eventually there becomes opportunity there. It’s still very low, but we are starting to see, again, an uptick in delinquency back in industrial. It’s probably an area where we need to look at, is this being very overbuilt, and again, do we have more properties that are outdated. There might be some actual opportunities in the industrial space.

[15:26] Kyle Paxton: Feels like all of the major retail players have that last mile delivery down, where you order something and get it in five seconds, and that’s got to live somewhere. To your point, industrial is in pretty good shape. So let’s talk about how these distressed opportunities really come to market.

[15:45] Kyle Paxton: We have the basic property sale, loan sale, I’ve seen some creative stuff out there. We get all shapes and sizes of real estate investors that we work with at James Moore, and it’s really interesting to see how the investors approach this type of market.

[16:07] Kyle Paxton: In this conversation, this is really where tax, accounting, legal structure really matter and have to be aligned. That’s a big part of our value proposition, making sure we can, on the front end, have the right structure in place. This is something we’ve talked about at length in these videos.

[16:28] Kyle Paxton: Really making sure everything’s right on the front end, so the economics of the deal post-tax align with what we’re actually expecting. In the current environment, I talk a lot about not wanting the tax to drive economic decisions, but the reality is tax is a big impact right now on real estate, so it’s a big part of the conversation.

[16:48] Kyle Paxton: In your basic property sale, I’m not going to spend a lot of time on this, we know how this functions. This is cleaner for most buyers. You acquire the asset, underwrite the title, the leases, environmental, the operations. You typically have an easier time raising capital with investors. But if you’re at the point where the property is available publicly and is publicly marketed, the discount may be competed away.

[17:19] Kyle Paxton: Especially, we talked about the Sun Belt, and markets we see very closely like here in Florida, a lot of eyes on Florida. I talk to real estate investors nationwide constantly looking at Florida, Georgia, Texas, those are states that come to mind. If you’ve got a city in mind, you’re probably not the only one.

[17:50] Kyle Paxton: So then the buyer comes in on these distressed deals, and the due diligence piece that carries the most weight in this is really taking a look at the deferred maintenance. Often that’s a huge spend. Tenant rollover, any unpaid obligations, and how has the seller actually been preserving the asset. We talked before about this quiet distress you see, deferred maintenance is a big part of that.

[18:13] Kyle Paxton: Another angle here is looking at the loan sale or a note purchase deal. In this example, the investor is buying the lender’s position, often at a discount. A lot of times that buyer comes in and has influence on the decision-making, but not immediate ownership.

[18:33] Kyle Paxton: That path to control can take different shapes and sizes, but could require workout negotiations, foreclosure, deed in lieu, bankruptcy court, borrower cooperation. These look very different timeline-wise and legal cost-wise than just the direct property acquisition.

[18:57] Kyle Paxton: I think it’s important to clarify that the discount to the unpaid principal balance is not the same thing as a discount to the real estate value in itself.

[19:21] Daniel Roccanti: I’d like to add here, I think when people think about buying real estate, they just think, “I’m going to buy the property outright.” And that’s the simplest form of buying real estate, and it will always be the core. But in opportunities when you’re dealing with distressed properties, you really want to open your horizon here and say, “Is there other opportunities?” Buying the actual loan or the note is actually sometimes a really good opportunity.

[19:21] Daniel Roccanti: We saw this in ’08, you know, to about 2012. A lot of properties got underwater, and banks don’t love foreclosing on properties, or any kind of lender. They don’t love it because they don’t want to deal with the property, that’s not their business. They just want you to pay back your loan.

[20:09] Daniel Roccanti: They’re willing a lot of times to sell these at a discount because they just want to try and get as much money back as possible, especially in a bad economy or something like that. We’re not anywhere near ’08 levels, but when you start seeing the distress, especially on the financing levels, there are opportunities there.

[20:09] Daniel Roccanti: You’ve got to understand what it is. Sometimes just buying a note is very simple, “now you’ve got to pay me.” But now you’ve got to realize, “they’re selling it to me for a reason, because they’re probably not paying it.” This could be a path to maybe foreclosure and actual ownership.

[20:35] Daniel Roccanti: So there’s some risk there, but also some great opportunities. Early in my career, it was right at the end of the ’08 crash. The ’08 crash happened when I was in college. When I came out, a lot of my work when I first started here at James Moore was dealing with these.

[20:58] Daniel Roccanti: People went out there and bought notes, and then sometimes they got paid back, sometimes they foreclosed on the properties, and the amount of gains on some of these properties they were able to get, it’s a really interesting opportunity you’d want to make sure you don’t overlook, because a lot of times this is a way where you can go in and buy a $30 million property at a huge discount, but it just comes with a different kind of risk.

[21:25] Daniel Roccanti: You can turn that around and flip it in a couple years, and I saw that from people buying notes from ’08 to 2012, then turning around and foreclosing on the property and selling it in 2018 and doubling the amount of money they made, just because they were willing to go that route.

[21:44] Daniel Roccanti: Definitely look at different angles here, it’s not always just buying the property, maybe acquiring the debt is a better choice for you, because it provides a higher upside.

[21:44] Kyle Paxton: Absolutely. Thanks for adding that, Daniel. We talked about this before, but I want to get a little deeper on how investors are sourcing opportunities right now. I mentioned this before, this is a relationship game, right? It’s relationships with those lenders, your special servicers, debt funds, regional banks, broker relationships, attorneys.

[22:25] Kyle Paxton: And then we talked before, I kind of made a joke about my AR. Property managers see operational distress early, having property manager relationships can be a great way to source here. Leveraging public records and information you can acquire, especially in the AI age, and doing direct outreach to owners facing maturities or capital calls, can be huge.

[22:47] Kyle Paxton: There are robust data platforms available all over the real estate space, so using the data you have to then parlay the relationships you have, connecting all those pieces together, can really give you an advantage in sourcing some of these opportunities. Our sourcing strategy is not just call me when something’s listed, it’s give me some visibility into the current setup here and owner’s pain points, and is there a way we can get on top of that.

[23:14] Daniel Roccanti: I think Kyle hit the nail on the head here with networking, it’s huge in real estate, and I think most people in real estate know that. But the deals that hit public, everyone sees them. Those are not the best deals.

[23:32] Daniel Roccanti: The best deals are private deals, before they become public. Really being able to network with those people, talking to lenders all the time. Believe me, lenders will let you know when they’re concerned about a property before it goes public, because they want to solve it before it ever goes public. They don’t want to deal with foreclosures.

[23:48] Kyle Paxton: They don’t want to deal with it. They just want to solve the problem.

[24:03] Daniel Roccanti: Broker relationships, these are big ones as well, they’re always seeing the market, they know the trends and things like that. Attorneys, especially real estate attorneys, property managers, look at the records, but you could also just be looking at the public records yourself, seeing when they come up. A lot of times people aren’t looking like that.

[24:03] Daniel Roccanti: There are programs out there like CoStar that are always scanning public records and giving you the details. Maybe you’re not using CoStar yourself, because that’s a paid subscription, but there are a lot of commercial brokers out there who do pay for that and have the access. If you have a great relationship with a broker, they can be looking at CoStar and giving you the most updated data so you can find opportunities.

[24:48] Daniel Roccanti: The people who are looking for the buy, these great opportunities aren’t going to fall in your lap. You still have to go out there, do the work, and make sure you’re talking to the right people.

[24:48] Kyle Paxton: When you’re talking to these people, like, “I found a property here,” what are some of the risks as a buyer buying these distressed properties? We’ve been talking about all the good parts, but there is some risk involved.

[25:10] Daniel Roccanti: Really, they’re distressed for a reason. A lot of times when you’re buying these properties, deferred maintenance is a big one. They’re probably going to need a lot of capital expenditures up front, roofs, HVACs, things like that. They could even be out of code. There’s probably going to need to be a lot of tenant improvements.

[25:26] Daniel Roccanti: You’re buying a property that’s distressed, whatever is in wherever the tenant is actually staying probably is looking pretty bad and needs some immediate tenant improvements. When you buy a property, property taxes get reassessed, so sometimes properties will get triggered a new assessment, and in the market we’re in now, it could actually increase property taxes.

[25:49] Daniel Roccanti: You want to make sure you don’t have any unexpected consequences. Insurance costs, again, as they start transferring ownership, you really need to understand what is the true insurance cost and where is it going to keep rising, same with any other operating costs.

[26:06] Daniel Roccanti: Then you need to look at your rent roll, can I improve on that rent roll? You’re probably going to need to be on the negative side here and say rents are probably not going to do as well as I think, because this is a distressed property. It’s going to take time to get back into good favor, and it’s going to take time for the community to even recognize it, because a lot of times if this was an eyesore in the neighborhood, you slap on some new paint, you might get a little attention, but sometimes it’s actually persuading the community that this has changed.

[26:36] Daniel Roccanti: So there’s a lot of things and complexities here. When you’re looking, just realize you need to understand, “I’m buying a distressed property, that comes with a lot of risk, and I need to make sure the numbers work, and I’m not just buying a property because I think it’s going to be an opportunity, but I actually don’t know what the numbers are, so I don’t know if it actually is a good opportunity.”

[27:02] Daniel Roccanti: Alright, let’s close this out here, shall we, Daniel? I think in summary here, what we’ve been covering is we’ve seen some, and I expect it to continue, distressed opportunities increasing in 2026. But it’s really around that kind of selective surge.

[27:22] Daniel Roccanti: It’s a good time to really be positioning as real estate investors trying to increase our portfolio, positioning on the relationships, understanding the current environment in regards to loan maturities, refinances, all that good stuff. Really identifying the areas where you feel like you can get a deal and get a distressed property, and that checks all the boxes we were talking about in penciling in the current rate environment.

[27:46] Daniel Roccanti: Those are all things to be thinking about right now. It’s a conversation we’re having a lot in 2026, and I expect it to continue. Keep those things in mind as you’re shopping around.

[28:02] Kyle Paxton: Yeah, don’t completely step out of the market, there is opportunities out there. You just need to make sure you’re networking, you’re talking to the right people, and you’re finding those pressure points, and you might be surprised that there is actually a good deal out there, just waiting for someone to find it, and hopefully that someone is you. Good, have a good one.

Watch the Full Conversation

Want to catch every detail on quiet distress in real estate, from asset class breakdowns to sourcing strategy? Watch the full episode above, or reach out to a James Moore professional to talk through what these trends mean for your portfolio.

 

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