Last year, economists from the Mortgage Bankers Association described the climate for commercial real estate finance as the “perfect calm.” Perhaps that should have been reason to worry. Twelve months later, things look a bit different, to say the least.

“Last year, there probably wasn't anything a lender wouldn't lend on,” said John Luka, managing director with Column Financial Inc., during a panel at MBA's Commercial Real Estate Finance/Multifamily Housing Convention and Expo held Feb. 3-6 in Orlando. “Now, there isn't anything a lender will lend on.”

The biggest issue facing the commercial real estate finance sector is the commercial mortgage-backed securities (CMBS) market. Estimates are that last year $450 billion in new loan originations occurred, with CMBS accounting for just more than half of that volume — $230 billion. Furthermore, CMBS account for roughly $750 billion of the total $3 billion of outstanding commercial real estate debt. Today, though, estimates are that CMBS volume will drop below $100 billion. The big question is: who is going to come forward and fill that hole?

Life insurance companies — which have lost market share with the rise of CMBS — don't seem to want to step up. Overall, estimates project they will only increase lending volume to $45 billion this year from $40 billion in 2007. The problem is life insurance companies aren't monolines, said Jan Sternin, senior vice president of commercial and multifamily for the Mortgage Bankers Association. Life companies aren't just lenders, but also investors in CMBS bonds. “Everything has to come through their investment committee,” Sternin says. “When they look at how all their investments are coming together, there is a sense of conservatism right now.”