Mired in one of the longest credit sieges in decades, commercial mortgage bankers are slashing expenses and cutting jobs to mitigate plummeting revenues. Only $137 billion in commercial property sales closed in 2008, a 72% plunge from the amount sold in 2007, according to a preliminary report by New York-based research firm Real Capital Analytics.

To survive and grow in this bleak climate, financial intermediaries have returned to Customer Service 101 by working with borrowers who need to refinance or restructure loans. On the other side of the ledger, mortgage bankers are helping lenders find sound investments, or move loans off balance sheets.

A lack of demand isn't the biggest challenge facing financial intermediaries, mortgage bankers say, not with $530 billion in U.S. commercial real estate debt maturing over the next three years and $160 billion coming due in 2009. In the post-commercial mortgage-backed securities (CMBS) world, the real test comes down to finding capital solutions and terms with which all parties are comfortable.

Last year, CMBS issuance in the U.S. totaled roughly $12 billion, a miniscule amount compared with $230 billion in 2007. Thus, a yawning financing chasm exists that life insurance companies, banks, government-sponsored entities (GSEs) and other lenders combined can't fill. That's one reason real estate officials are lobbying for federal bailout funds.

“Right now only the very best sponsorship in deals with the very best real estate and underwriting are getting done, but it's exceedingly hard,” says John Pelusi, CEO of Pittsburgh-based HFF Inc. “We are uncovering every single nook and cranny in the capital markets today, whether it's debt, mezzanine financing, preferred equity or straight equity to fill a financing gap.”

Leveraging relations

But the deals mortgage bankers are able to complete aren't enough to maintain growth. HFF laid off 12% of its workforce in the fourth quarter, reducing the number of employees to 433. That move followed the company's reported revenues of $106.8 million through the first nine months of 2008, a 47.5% decrease compared with the same period in 2007.

HFF (NYSE:HF) closed at $2.34 per share on Jan. 15, a 70% decline from its 52-week high in February 2008. By comparison, on Jan. 15 the Dow Jones Industrial Average was down 41% from its 52-week high in the spring of 2008.

Even so Pelusi remains upbeat about his company's position. He counts relationships with life insurance companies, community banks, GSEs and other lenders among HFF's most valuable assets. Those associations give HFF and mortgage bankers with similar relationships an edge over brokers that relied heavily on the CMBS market for financing, he says.

Case in point: Financial intermediaries are increasingly bringing together several lenders in so-called “club deals” to finance transactions that exceed $50 million or that involve riskier property types such as hotels and retail centers. Last fall, for example, HFF assembled six banks to recapitalize a West Virginia mall for Columbus, Ohio-based Glimcher Realty Trust. The transaction totaled $40 million, and each bank chipped in between $3 million and $17 million.

“I don't think anybody's quite been through what we're going through now,” says Pelusi, referring to the length and depth of the credit crisis that started in the summer of 2007. “But this is when exceptional companies distinguish themselves and when the mediocre players get weeded out.”

Follow the money

HFF isn't alone in cutting costs or in its intent on grabbing market share. Los Angeles-based CB Richard Ellis Group, which operates mortgage banker CBRE Capital Markets, is cutting nearly $200 million in expenses; about half is in staff reductions and curtailed compensation.