I haven't written much about commercial real estate lately.  CMBS spreads are off the charts.

From The Wall Street Journal

The market for debt used to finance hotels, offices and shopping malls tumbled Tuesday on worries that the long-feared rise in defaults for commercial mortgage-backed securities had begun, possibly ushering in the next phase of the financial crisis.

Analysts at Credit Suisse said two big commercial mortgages that had been packaged into securities in the past year were likely to default. The rapid deterioration of these loans fed worries that the weakening economy and higher unemployment rate would drag down the $800 billion market for commercial-mortgage-backed securities, or CMBS, which so far has withstood the credit crisis with low delinquency rates.

"It's pretty unheard-of for two large loans to go bad this early on," said Richard Parkus, head of CMBS research at Deutsche Bank Securities Inc. "This has shaken up the market" for CMBS, he said. The analyst report pushed the index that tracks these securities, the Markit CMBX, to record levels compared with Treasurys.

The news comes as defaults on commercial mortgages are starting to rise. According to a Citigroup Inc. report, the overall number of commercial mortgages packaged into securities that are 30 days or more past due rose to 0.64% in October from 0.39% at the end of last year, with most of the increase coming in October. The latest figure, though low by historic standards, marked the highest delinquency rate in two years.

The jump in soured commercial loans was mainly due to the financing drought and a lack of buyers. Property owners have been unable to refinance mortgages as they have become due, forcing defaults if existing lenders have been unwilling to extend loans under the same terms.

And from Paul Kedrosky.

I'm reading all sorts of people saying you should short REITs.  I was saying to short REITs early last year, though, clearly, I covered way too early.  REITs may go lower, but 80% of the move is done. 

I think there is more downside to come for commercial real estate, but long-term, I am much more a buyer than a seller.  If the IYR becomes a teenager, REITs become Stupid Value and I intend to close my eyes and buy.