When the credit crunch first broke in earnest last fall and froze the U.S. commercial mortgage-backed securities (CMBS) market in its tracks, the most bullish prognosticators predicted a mere blip. Many expected issuance in the U.S. to be down from $237 billion in 2007 but thought it could reach $150 billion. The conservative estimates put the expected 2008 volume at $100 billion.

Today, those worst-case scenarios are looking wildly optimistic. Through the end of June, U.S. CMBS issuance had reached just $12.1 billion according to Commercial Mortgage Alert, an industry newsletter. Overall, that's a 91 percent drop compared with the first six months of 2007. In June itself, $1.3 billion of CMBS bonds were sold. That was up slightly from the $900 million in May, but down more than 96 percent from the record $37.4 billion in June 2007. In all, analysts are no longer calling for any kind of rebound this year. Analysts from J.P. Morgan Chase & Co., in fact, expect the second half of 2008 to be even quieter than the first, with full-year CMBS issuance volume totaling $20 billion.

CMBS spreads to 10-year Treasuries have widened considerably and continue to fluctuate. As a result, it's more difficult for borrowers to decide whether or not to take conduit loans. Further, alternative sources of funding, such as banks and life insurance companies, aren't offering the same generous terms CMBS lenders did in the past, nor are they greatly increasing their allocations to commercial real estate.