Transactions have slowed, and CMBS is taking a particularly hard hit. Despite this, a majority of our poll respondents (69%) believe CMBS is merely sleeping and will wake one day. Far fewer (19%) believe CMBS is dead, and even fewer than that (12%) say CMBS is dying. Jon Mikula, senior managing director of Holliday Fenoglio Fowler, LP, is in the majority. Here are his thoughts:

"Nothing's going on. So far this year, there have been about four pools that have been out for securitization, and they total about $5 to 6 billion. To our knowledge, none of the loans in those pools were originated in 2008, they were all 2007 transactions. To put it all in perspective, in 2007, there were about $230 billion in loans that were securitized or originated.

"There's been almost no activity relative to CMBS lenders closing transactions in 2008, and, as such, you've seen significant layoffs from all the major investment banks. It's really just been anemic. It's a function of all that's happened since last summer. If borrowers were willing to accept the economics of a CMBS deal that could be closed today, we wouldn't have problems, it's just that the loans they can actually close are extremely conservative both from a loan to value and from a debt service coverage constraint basis, and the pricing of that capital is off the charts.

"When you have alternatives in the market, such as insurance companies and banks, and your other option is CMBS and the proceeds are low and the cost is high, well you're not going to go with that option. That's the reason why nobody's doing CMBS transactions. There's also the fact that there's a loss of confidence in the consumers' eyes. They're afraid that the CMBS deals that were on the table aren't going to close on the terms that the borrower signed up for. There's been a lot of turmoil and a lot of retrades, there were lenders walking away from commitments, so there's a major loss of confidence.

"It's going to take time for the CMBS market to get back on track. Just a point of reference: the commercial real estate debt market totals about $3 trillion, and a quarter of that is securitized loans, so it's a huge component of the universe of debt finance. What's it going to take to turn it around? It's going to take some stability in the secondary markets. The market needs some positive successful transactions, and when I say transactions, I mean CMBS transactions. There are a few people out there trying to take a lead on that, getting out there and making and closing those loans. We need that to take place, we need some leadership and momentum, and then I think others will follow. Of course, it's going to be a whole different world of underwriting and all that, but if that happens, CMBS will be back.

"The other thing too that will help is the limitations of the other options. Because CMBS is such a huge player in debt financing, everybody's trying to fill the void. It's not like the insurance companies have an open checkbook and they can just lend out whatever they want. They're hitting allocations and many are on the sidelines not lending at all because they're concerned about allocation issues or they're buying CMBS paper. We're seeing the banks pull back as their outlays are exceeding their deposits. Again, it's not an open checkbook, you can't just lend as much as possible. I think come the third and fourth quarters of this year, you're going to see insurance companies pull back and the CMBS terms that weren't very competitive will become a competitive alternative. It's conservative and priced expensively, but come third quarter, if the insurance companies are out of the market and the banks have pulled back, maybe a CMBS execution makes sense.

"The other thing that needs to happen is sellers need to be realistic about what the market is today, and that the property is worth less this year than it was last year because the buyers can't financially engineer a return that they're expecting. When that bid-ask gap in the sale market narrows and sellers realize that last year's ancient history and if they want to sell, they have to come to grips with what the property's worth. When that gap narrows, more transactions are going to take place, and that's going to fuel a need for capital and I think CMBS will come back into play. It'll probably happen in late 2008."