One of the most asked questions in our industry today is: How much troubled commercial real estate debt is out there? This question, however, only addresses part of the overall leverage issue that is facing not just commercial real estate investors but households, businesses and governments around the world. The more complete questions to ask are: How much commercial real estate debt is outstanding? How much may evaporate or need to be replaced with equity due to a combination of falling asset prices and general deleveraging? And, most importantly, what does this mean to the cost of commercial real estate debt and equity?

Heavy levels of new debt issuance during the past few years combined with loose underwriting standards and aggressive growth assumptions are resulting in growing levels of delinquency and default today. This will affect the cost of debt and equity in the near term, but it is the imbalance between the demand for debt and its limited availability that will imp