Scion of legendary real estate billionaire family explains the slow-motion car crash happening in commercial real estate finance.

Harrison LeFrak’s summary:

* There’s $3.5 Trillion of Commercial real estate debt

* $1.7 Trillion on books of community, regional & sub-regional banks

* $850 Billion in the CMBS market

* CMBS issuance went from “Hero to Zero” ($250B to less than $9B YTD)

* Both the holders of the debt and the quality of the debt itself are distressed

The problem will get really bad in 2010 because:

* Underwriting standards departed from reality in 2005-07 with 5-10 Yr loans made

* It could bring down more than 500 community/regional banks in the next 12 months

* Their commercial mortgages are not marked to market but waiting for maturity defaults

* There’s an $850B problem in the CMBS market w/ extension issues, everybody hands tied

* The shadow banking asset problem migrates onto the banking balance sheets, like RMBS

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