Quiet Distress in Real Estate: Warning Signs Before It Goes Public

The Real Estate Distress You Won’t See on the Evening News

Most people picture real estate distress the way they remember it from 2008: foreclosure signs, bank auctions, headlines about a market in freefall. But the distress building in today’s market looks nothing like that. During a recent episode of Your CPA’s Take on Real Estate, Daniel Roccanti and Kyle Paxton discussed quiet distress in real estate and why it rarely shows up in public records until it’s too late for most buyers to act on it.

Their conversation focused on a simple but important idea: by the time distress becomes public, the best opportunities are already gone.

What Quiet Distress Actually Looks Like

Public distress is easy to spot. It’s a foreclosure filing or a delinquency report on a commercial mortgage backed security. Quiet distress is harder to catch, and according to Roccanti and Paxton, it’s where the real signal is right now.

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

That tick up is showing up in ways that never make headlines: deferred maintenance piling up as owners cut discretionary spending, unpaid vendor balances, loan covenants being breached, and investors pressuring owners for capital calls they can’t meet. Paxton pointed to an even more personal indicator, watching his own accounts receivable for patterns.

“I can see some quiet distress in my 90-day AR in these asset classes we’re talking about,” Paxton said. “I see some common themes in the 90-plus day AR that I’m sitting on.”

Why Distributions and Deferred Maintenance Matter

Two of the clearest early signals discussed were cuts to owner distributions and deferred maintenance. When a property stops performing the way it once did, owners often reduce or eliminate distributions to investors long before they miss a loan payment. Around the same time, routine maintenance starts getting pushed off.

“The moment the money starts getting tight, well, I’m not willing to go out there and start spending on all my maintenance, so you start seeing deferred maintenance start piling up,” Roccanti said.

Neither signal requires access to CMBS delinquency data or public filings. Both are visible to anyone paying attention to how a property or its ownership group is actually behaving.

The Pressure Behind the Signals

Roccanti and Paxton tied these signs back to a broader operating environment: higher interest rates, roughly twenty percent of commercial borrowers facing refinancing this year, rents staying flat, and operating costs climbing. That combination is putting pressure on owners across asset classes, particularly office and multifamily, even when the properties themselves aren’t in obvious trouble yet.

“You kind of have that trifecta where you have a lot of the source of this conversation come with just properties being penciled in a lower rate environment,” Paxton said. “We have a higher rate environment, rents are lower, costs are increased, kind of creates a perfect storm there.”

What This Means for Real Estate Investors

Spotting quiet distress in real estate takes more effort than watching public listings, but that effort is exactly what creates an advantage. Investors who build relationships with lenders, brokers, attorneys, and property managers hear about pressure points long before a property is marketed publicly. By the time a deal is public, the discount has usually been competed away.

To keep learning how to spot these signals early, subscribe to Your CPA’s Take on Real Estate on YouTube for more conversations like this one, and reach out to a James Moore professional to talk through how these trends might affect your own real estate holdings.

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