Over 250 small and midsized banks have been closed and it is possible another 300-500 could get closed or merged over the next two years. Some of the big aggressive banks like Wachovia, Countrywide, Colonial, Freemont and Corus are gone. Capmark is gone, I Star is still stabilizing, and CIT and others are essentially gone. CMBS may be slowly returning, but it will be a long time before the old style conduit lending returns for the average small to medium sized project refinancing. It may be one year, but more likely it will be two or more years as the economy falters and the recovery remains muted. The lending infrastructure is obliterated with entire lending groups at major firms having been wiped out. That has to be rebuilt and there will need to be some changes to how it operates under Finreg. The rating agencies are still trying to figure out how they will rate the everyday conduit pool of properties.

Although many talk of all the capital looking for a place to invest, reality is that there is a total of roughly $3.4 trillion of real estate debt outstanding from all sources and which will be maturing over the next 7-10 years. There is supposedly around $800 billion of just CMBS which will be maturing that has to be refinanced. 2010 CMBS issuance will just be $6-$10 billion most likely. Not even a rounding error, and it was almost all to just a few top borrowers. There will not be capital for the average borrower with a property in a secondary city for a long time.

On top of all of this there is all the refinancing and new financing required for companies, municipalities and states. That is another very large sum. Then we have to fund the Obama-Pelosi spending binge and massive federal deficits. I don’t know what the overall demand for capital will be over the next 5 years, but clearly it is massive. While that demand is growing, the Fed is going to be reducing the money supply and raising rates. Consumers are also going to hopefully be increasing borrowing for homes and autos. All of this ignores the demand for capital from foreign governments and businesses.