Bordwin says that process could limit the pain of the meltdown to the property owners who bought high and are forced to sell low, instead of spreading it to the general economy. (Editor’s Note, August 17, 2009: After this article was published, Bordwin requested a clarification. According to Bordwin, with Commercial Mortgage Backed Securities, special servicers are not concerned about maintaining capital reserves the way that banks are. Thus, special servicers may be more likely than banks to foreclose and sell collateral, even at deep discounts. If and when that happens in mass, this will establish clearing prices that will likely be significantly below the prior debt levels and may cause a significant devaluation of commercial real estate held on the books of banks and others. But the damage may be limited by all that buying. Recognizing that there is a significant amount of capital waiting to buy troubled assets, there is a rush of capital back into the market to buy troubled assets. That may prop up prices and limit the devaluation of commercial real estate.)

Others see signs that the pain in commercial real estate may not be such a drag on the economy.

Shawn Howton, associate professor of finance and director of the Daniel M. DiLella Center for Real Estate at the Villanova School of Business, says there’s hope that the government program that loans funds to buy troubled assets could help ease troubled commercial real estate securities. Bank negotiations with property owners could extend loan maturities until the market rebounds enough for rents to rise and building owners to pay the loans.

Ed Mermelstien, co-founder and managing principal of Edward A. Mermelstein & Associates, an international real estate law firm, sees evidence that the market may be stabilizing. Losses in commercial real estate for the banks are being offset by profits in other bank activities, like trading.

Keven Lindemann, director of SNL Financial Real Estate Group, points to the performance of Real Estate Investment Trusts (REITs), publicly traded commercial real estate firms that control 10 to 25 percent of the market, as reason for long-term optimism.

REITs, after a 75 percent decline in stock value from February 2007 to March of 2009, rallied in the last couple of months, rebounding 87 percent from all time lows. Normally, he says, REITS are viewed as a proxy for the overall state of the commercial real estate market.

“If the market is looking forward…the market appears to be making a statement that commercial real estate is going to be back,” he says.