Struggling property loans burden banks, curb deals

By Jonathan Keehner and Al Yoon

NEW YORK (Reuters) - Bankers hoping for an upturn in the stagnant market for commercial real estate lending should not hold their breath.

Property buyers are finding that commercial mortgage backed securities, a key funding source for big real estate deals, remain difficult to sell to investors such as hedge funds -- more than three months after originations first seized up amid fallout from the subprime mortgage crisis.

Few investors or traders now expect the funk to end until at least the second quarter of next year.

Most banks who package pools of commercial real estate loans into bonds, or CMBS, are unwilling to lend more money to real estate buyers because they have such a huge backlog of the securities that cannot find a home.

"If 30 firms were quoting and closing deals in April, it's more like five today," said Steve Schwartz, the New York-based co-head of JPMorgan Chase & Co's (JPM.N: Quote, Profile, Research, Stock Buzz) real estate group, a top-ranked underwriter along with Wachovia Corp (WB.N: Quote, Profile, Research, Stock Buzz) and Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz).

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Bankers say current appetite in the CMBS market is limited to smaller offerings, perhaps only $300 million to $500 million in size. That is a far cry from the $6.9 billion in CMBS that financed Blackstone Group's $23 billion acquisition of Equity Office Properties Trust earlier this year.

Bankers are finding it particularly difficult to find buyers for the debt from what are seen as riskier deals.