That all changed with Lehman Bros.' bankruptcy, of course. Now, the real estate industry is facing both a long-standing credit squeeze – which is likely to get even worse – as well as an economy that will no longer support the underlying fundamentals of many cities' office, multifamily and retail real estate investments.

To be sure, associations that represent the real estate industry are lobbying Congress for assistance. The Real Estate Roundtable, the National Assoc. of Realtors and the Commercial Mortgage Securities Assoc., among others, are promoting a plan for the government to use some of the bailout funds to buttress credit and lending in real estate. While the details of these plans differ – and in some cases still remain behind-the-scenes – they are all largely based on the premise of a $200 billion credit facility that would support healthy, new issue CRE loans.

Such a facility is essential as there are hundreds of billions of loans rolling over next year from CMBS transactions underwritten in better times. A new report by investment fund manager Blumberg Capital Partners, found that maturing debt obligations will come under even more stress in 2009 with leasing rates poised to drop an additional 20%. Office vacancies could potentially rise to 25% by the end of the year, and take until 2011 to stabilize.

Job losses exploded in Q4, reaching 1.2 million since September, Bob Bach, senior vice president, Research, with Grubb & Ellis, tells GlobeSt.com. That number compares to less than 100,000 a month for the first eight months of the year. The economy is in for several more quarters of deteriorating market fundamentals now, he believes. "And when leasing fundamentals soften further, it will become that much more difficult to for investors and building owners to get financing."

Without new stimulus from Washington – and despite the $250 billion plus capital injection into the banking system earlier this year by the Treasury Department -- it is unlikely that lending will resume. Entreaties by the government to lend apparently has fallen on deaf ears, Nat Davis, principal and partner with WDJ Realty Group in Sugar Land, TX, tells GlobeSt.com. "Most bankers that I have spoken to have said that they pay 5% interest on that money, so they are not going to loan it to customers when they can hold on to it and wait to buy the assets of failed banks and make a 20% return."

Davis suggestion? "There is a need for money in the commercial real estate sector and it should be at the same rates and terms as the existing debt that is maturing. This will ensure that the projects are viable and the government doesn't get stuck with junk."

But it is not clear that a federal bailout will be forthcoming -- the mood in Congress is growing more antagonistic. That doesn't necessarily doom the industry, but it will certainly be in for some ugly times next year.

Neil Freeman, CEO of Aries Capital, points to one bright spot if the industry has to navigate the coming without the benefit of a federal credit facility. Most lenders are still very conservative and many are still out of the market at the current time," he tells GlobeSt.com.

That said, he continues, "I have seen…I wouldn't call it a loosening, but a more reasonable response in the financial markets to loans that are coming due." In Q4, he says, there were several borrowers in loans that were concerned whether they would be renewed. "In most cases even if the property was distressed lenders were renewing loans at reasonable interest rates."