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Many properties acquired between 2005 and 2007 when prices were at their highest were overleveraged, Bernhaut said. “What you’re seeing now is difficulty in refinancing assets.” The commercial mortgage-backed securities market a major source of commercial real estate financing during those years is no longer active, because of the large losses the holders of these securities have suffered, while “lenders have gotten much more conservative, so they won’t lend the type of proceeds necessary to pay off existing mortgages,” he said.

Lenders are currently lending at a 50 percent to 65 percent loan-to-value ratio, compared to 70 percent or 75 percent five years ago, said Kenneth Pasternak, chairman of KABR Real Estate Investment Partners LLC, a Paramus-based opportunistic real estate investment fund. Meanwhile, real estate is being appraised at values that are off by 25 percent of what they were five years ago, he said.

Real estate investment activity in New Jersey peaked from 2005 to 2006, and with most commercial real estate loans having five-year terms, the majority of those mortgages are due to mature between 2010 and 2012, he said.

Delinquencies made up 3.7 percent of commercial mortgages in New Jersey during the second quarter of 2009, up from 1.6 percent in the same period a year ago, according to Foresight Analytics, an Oakland, Calif.-based research firm. An estimated $7.4 billion of commercial mortgages are expected to mature between 2009 and 2011 in New Jersey, which ranks 13th in the nation in terms of the dollar amount of commercial mortgage maturities during the two-year period, the firm said.

Foreclosures and deeds in lieu of foreclosure have affected more than 15 buildings in New Jersey in 2009, and will become more and more prevalent during the second half of 2010 and 2011, as more commercial real estate debt matures, said David Simson, vice chairman and chief operating officer of New Jersey operations for commercial real estate services firm Newmark Knight Frank.

For properties purchased in the last five to six years, “the debt structure associated with those buildings may very well exceed the current market value of those buildings,” meaning the owners have no equity, to offer concession packages to prospective tenants, nor can they pay service providers, he said.

While a lender may attempt to restructure a commercial loan with a borrower, restructuring involves a borrower being able to come up with more equity and the building having a net operating income that can service the debt after restructuring, he said. “Many borrowers and many buildings just won’t pass that muster, and can’t be restructured,” Pasternak said.

This usually results in the lender taking back the property, but “very few lenders are structurally suited to owning real estate,” he said. Instead, it’s “like a case of head lice ‘let me get rid of this as quickly as possible.’”

To get a property off their books, lenders are willing to sell at the current market value and take a loss, but that can stress banks’ balance sheets, Pasternak said. “The reserves that you’ll need and the losses that will be incurred in the next three years far exceed” expectations, he said.

Meanwhile, the nation’s largest banks which all have sizable commercial lending portfolios — are undercapitalized, he said. “The repercussions are the government might have to intervene and help the banks get more capital,” Pasternak said.