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Anyone who was alive and sentient in the 1990s might remember driving down any big city expressway and noting empty, shuttered buildings dotting the landscape resembling ghostowns. Now, unless something changes we could be headed for a similar scenario.

And it couldn't come at a worse time, since commercial real estate has been one of the less dark spots that have kept the banking system from further erosion. Yet, according to The Wall Street Journal, if current trends remain in place, the worst is still ahead.

There are some $700 billion in commercial real estate loans outstanding, and the default rate is on the rise, with "The delinquency rate on about $700 billion in securitized loans backed by office buildings, hotels, stores and other investment property has more than doubled since September to 1.8% this month, according to data provided to The Wall Street Journal by Deutsche Bank AG. While that's low compared with the home-mortgage delinquency rate, it's just short of the highest rate during the last downturn early this decade."

According to the Journal, the damage in the 1990s represented a nearly 8% default rate on outstanding debt at the time. To put it in perspective, that much of a default rate put "close to 1,000 U.S. banks and savings institutions" out of business and cost nearly $50 billion.

To be sure, that's peanuts compared to today's trillion dollars for this and trillion dollars for that culture. Yet, when put in the proper context, the failure of 1000 banks and savings institutions in the current climate could become the straw that breaks the camel's back.

So what is the potential damage today? According to the Journal: "Since late 2007, a total of 47 banks and savings institutions have failed, of which a dozen or so had unusually high commercial-mortgage exposure. Foresight Analytics in Oakland, Calif., estimates the U.S. banking sector could suffer as much as $250 billion in commercial real-estate losses in this downturn. The research firm projects that more than 700 banks could fail as a result of their exposure to commercial real estate."

Furthermore "The Real Estate Roundtable, a trade group, estimates that commercial real estate in the U.S. is worth $6.5 trillion and financed by about $3.1 trillion in debt. Partly because the commercial real-estate debt market is nearly three times as big now as in the early 1990s, potential losses in dollar terms loom larger."

And if you add the potential for this to happen in close proximity to another down leg in housing real estate, as we reported here yesterday that some are predicting, it doesn't take much imagination to see the whole debacle leading to yet another job cut, rising default led, downturn in the economy.

Making matters worse is the fact that commercial property loans usually run ten years to maturity. Many are then refinanced. But if property values fall, as they well may, then banks would not want to refinance the loans at a favorable rate, then raising the potential for investor losses down the road, a fact that's keeping bargain hunters away from already distressed properties.

Already there are signs of stress since of the "$154.5 billion of securitized commercial mortgages coming due between now and 2012, about two-thirds likely won't qualify for refinancing, Deutsche Bank predicts. Its estimate assumes declines in commercial-property values of 35% to 45% from the peak in 2007. That would exceed the price drops in the downturn of the early 1990s."

Here are some statistics to ponder:

• Deutsche Bank "the default rates on the $700 billion of commercial-mortgage-backed securities could hit at least 30%, and loss rates, which figure in the amounts recovered by lenders, could reach more than 10%, the peak seen in the early 1990s."
  
  
• The next two years are critical as "Besides securities backed by commercial real-estate loans, about $524.5 billion of whole commercial mortgages held by U.S. banks and thrifts are expected to come due between this year and 2012," according to the Journal.
  
  
• "Nearly 50% (of existing loans) wouldn't qualify for refinancing in a tight credit environment, as they exceed 90% of the property's value, estimates Matthew Anderson, partner at Foresight Analytics. Today, lenders generally won't loan over 65% of a commercial property's value."