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

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

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

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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 amonth for the first eight months of the year. The economy is in forseveral more quarters of deteriorating market fundamentals now, hebelieves. "And when leasing fundamentals soften further, it willbecome that much more difficult to for investors and buildingowners to get financing."

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Without new stimulus from Washington – and despite the $250billion plus capital injection into the banking system earlier thisyear by the Treasury Department -- it is unlikely that lending willresume. Entreaties by the government to lend apparently has fallenon deaf ears, Nat Davis, principal and partner with WDJ RealtyGroup in Sugar Land, TX, tells GlobeSt.com. "Most bankers that Ihave 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 onto it and wait to buy the assets of failed banks and make a 20%return."

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Davis suggestion? "There is a need for money in the commercialreal estate sector and it should be at the same rates and terms asthe existing debt that is maturing. This will ensure that theprojects are viable and the government doesn't get stuck withjunk."

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

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Neil Freeman, CEO of Aries Capital, points to one bright spot ifthe industry has to navigate the coming without the benefit of afederal credit facility. Most lenders are still very conservativeand many are still out of the market at the current time," he tellsGlobeSt.com.

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That said, he continues, "I have seen…I wouldn't call it aloosening, but a more reasonable response in the financial marketsto loans that are coming due." In Q4, he says, there were severalborrowers in loans that were concerned whether they would berenewed. "In most cases even if the property was distressed lenderswere renewing loans at reasonable interest rates."

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