The commercial real estate market is in the early stage of a cycle that will be dominated by the restructuring of distressed debt. No one knows how long the cycle will last and how severe the distress will be, but there is no doubt that the market will not regain its balance until the vast majority of distressed debt — completed through scores of individual property recapitalizations — is resolved.

A huge portion of the commercial real estate world was financed between 2005 and 2008, when commercial banks and securitization programs alone originated $2.3 trillion of aggressively structured mortgage debt — not to mention the additional mezzanine debt that was placed on many of the properties during this time. The combination of high loan-to-value (LTV) ratios and peaking property values created a glut of properties that cannot be refinanced without an equity infusion or other restructuring. There is a giant gap between the volume of existing debt on commercial properties