I recently attended a conference sponsored by the Federal Reserve Bank of Atlanta that focused on issues confronting commercial real estate. While it gave me an opportunity to speak directly to the banking community about some of the financing problems in the lodging sector, I found the session fascinating for several reasons.

While STR focuses primarily on hotels and the economic trends that affect travel, hearing about problems confronting other types of commercial real estate was enlightening.

The first number that got everyone’s attention was the $1.5 trillion estimate of debt maturities on CRE during the next 18 to 24 months. The big question is where does the money needed to refinance these maturities come from? If banks aren’t lending much money to CRE at this point, why would they start lending as this debt comes due?

As of the second quarter of 2009, lodging constitutes the highest percentage of delinquency and defaults of all types of CRE at 4.56 percent of the loans, according to the Fed. Close behind is multifamily at 4.2 percent and retail at 3.25 percent. Industrial CRE is running at 2.26 percent, while office is at 1.74 percent.

As of the third quarter of 2008, the delinquency and defaults rates for all types of CRE were less that 1 percent, except for multifamily, which was already at 2.3 percent.

For all CRE during the second quarter of 2009, the delinquency and defaults averaged 2.99 percent compared with the third quarter of 2008 when it stood at 1.14 percent. Almost every speaker anticipated a continued increase of the delinquency and default rates during the next 12 to 18 months.

In general, there’s too much supply of CRE and not enough demand. One comment that stood out was that in a typical big city market, the norm for retail space is about 15 square feet to 20 square feet per capita. In Atlanta, that number stands at 40 square feet per capita, and the entire state of Florida isn’t much less. It could take a decade or so to work off the excess retail space in several major markets.

With excess supply in almost all real-estate types including housing, the construction industry won’t be providing a significant number of jobs to help fuel any type of rebound. One comment that captured the attention of numerous attendees was that the Fed should consider paying builders not to build just as the government pays farmers not to farm.

The general consensus was higher demand will only come about through an improvement in the job market, and this isn’t anticipated any time soon. The Fed has even referred to the current economic trend as a jobless recovery. With few jobs coming from construction and the unemployment rate expected to exceed 10 percent by the end of the year, an improvement of demand could take several years. This situation is expected to take a serious toll on pricing.

While this is evident in lodging, the expectation is that in all other types of CRE, as leases expire, there will be tremendous pressure on lease rates, driving them downward even more and aggravating the overall health of the CRE market.

While not specific to CRE, the comments about the housing market also were interesting. The Fed speaker called this the worst housing market in 50 years, but the best home pricing in more than 30 years.

Among the problems cited was the lack of new household formation. A particular concern was the astounding shortfall in jobs for new college graduates. For the most recent grads, the number with jobs upon graduation was a remarkably low 19.7 percent.

As a result, most of the grads are moving back home or are otherwise not in a position to start new families or homes. The Fed estimates there are about one million excess homes in the U.S.

The conclusion was that solving these problems will take time. Easy money is what got us into this mess, and it could easily aggravate the problem going forward. However, capital for CRE is scarce and expensive. There are issues to be resolved concerning valuations and appraisals, loss recognition of assets on the books, and easy fixes that help in the short-term but aggravate the long-term.

For the government, a stimulus package that actually created new jobs would be positive, but with the debt markets in disarray, adding to the federal debt will only make matters worse. Essentially, the one take-a-way was the worse is still to come for CRE.

All of this has profound implications for the lodging industry.

If capital isn’t available to maintain the existing properties, or renew debt maturities, the industry’s basic inventory of rooms will begin to deteriorate. While we continue to open new rooms that aggravate the supply situation more, a turnaround in demand may not materialize until late 2010. As a result, we don’t expect room rates to stabilize until at least the summer of 2010.

The good news is that by the end of 2010, supply growth should be close to zero and any improvement in demand will lead directly to higher occupancies and room rates.