President and chief economist at Real Estate Economics LLC, Chandan later added that over the course of '09, a challenge the real estate community will have to face head-on is the rising delinquency and default rate. "That default and delinquency will significantly impact the way our market is perceived as an investment class," he said.

In 2008, the nation saw 1,400 commercial real estate transactions, down from 4,400 in 2007. And as of November in New York City, commercial real estate deals had fallen off by 61%.

Chandan said the ways by which public policy sought to support the commercial real estate market in '09 will be a significant factor in terms of judging and accessing the outcomes for the sector for the next year or two.

"For the last part of '08 and now the first part of '09, there has been no CMBS market to speak of, and that has been particularly problematic," said Chandan. "By mid-'07, CMBS had become the dominant source of credit availability within the real estate space."

Through most of '08, the banks had stepped up where they engaged in reasonable levels of underwriting, Chandan said. But he added that by the end of Q3, the balances on the books of commercial banks for commercial real estate were actually in decline.

Even still, Zandi said the best illustration of the overall downturn's severity was the job market. "Nationally, we lost 500,000 jobs in December, which means since those declines began, the nation has seen 2.6 million jobs disappear." Zandi noted that it is the largest continuous employment decline since the end of World War II.

He said that here in New York City, thus far, the local economy had held up by most measures when compared to the rest of the nation. However, he predicted that '09 will prove to be extraordinarily difficult, and that given the troubles brewing in the financial service industry, the city will be in for some of its hardest knocks to date.

The fact is, this past August, the New York City Economic Development Corp. reported that the city's financial services sector employed just over 344,000. As Zander noted, the financial services industry is still the engine of growth in the city, although in terms of absolute jobs, it represents only around 10% of the overall job base. But in terms of income, those jobs have fueled 25% of the economy.

Attempting to frame his prediction as optimistic, Zandi said that '09 would usher in the loss of 250,000 jobs and that by 2010, another 50,000 would join them. Zandi said one could write a book about how the country ended up in the current mess--and noted that in fact he had, written such a book, Financial Shock, a phrase that could describe the look on ULI attendees' faces by the end of the event.

He added that the country was in the "third wave," a combination of flippers and speculators with negative equity conditions buying amid rising unemployment. He said that's a problem that will continue to rise through '10 and beyond unless there are significant policy changes.

"The losses have undermined all the capital based in the system," he told the audience. "I can see the magnitude of the loans originated in the boom-bubble period from 2004 to '07."

Calling the current situation a panic, Zandi said the genesis was the September '08 weekend the federal government took over Fannnie Mae and Freddie Mac. When that happened, it crystallized in the minds of investors that no financial institution is safe.

Zandi predicted a 21-month long recession, with no roaring back to health as in recessions past. "I suspect it will be 2011 when people start feeling better."