The commercial real estate sector has been in a slow motion collapse for a year-and-a-half now. Plummeting property values, driven by the economic slow-down, have dissolved huge amounts of equity that had existed prior to the recession. Now, although the buildings do have an inherent, underlying value, a large percentage of commercial real estate acquired in '05,'06 and '07 are virtually worthless to the investors who bought them.

They can not be refinanced, they can not be sold and few are willing to inject enough capital into them to make them financially healthy again. An already battered market finds itself facing a virtual tsunami of offices, retail outlets, warehouses, hotels and apartment buildings that are about to be abandon by, or reposed from the investors who borrowed hundreds and hundreds of billions to buy them.

The problem is massive and the resolution will involve massive financial pain and suffering. Banks will fail, developers and investors, large and small, public and private will go out of business, misguided legislators will attempt to shift much of the burden onto the taxpayers in doomed, budget busting bailout attempts and much wealth will evaporate. All this will happen over an extended period of time.

In the mean time huge amounts of money are amassing on the sidelines. REITs, wealthy individual investors and private commercial real estate firms are all successfully raising large amounts of capital and getting ready to jump in when the time is right. They are waiting for two things; lower prices that reflect undeniable value and a dependable credit market.

Prices are getting lower every day as property owners, deal sponsors and the lenders who enabled them, slowly come to accept the true magnitude and direness of their situation. A flooded market will seek out bargain hunters and entice them with bargain prices. Weak and/or foolish banks will be taken over by the FDIC and placed in more responsible hands.

The surviving strong banks will find themselves bolstered with all the assets but none of the liabilities of banks they were compelled to buy. The new loan applications they will receive will be supported by healthy down payments and reasonable purchase prices and they will be sponsored by successful business people with impressive wherewithal. The banks will lend and the recovery will be underway in earnest.

We can have confidence that the markets will work but we have to realize the working of the markets involves extracting a price prior to conveying a benefit. The price is about to be paid and the benefit while distant is forthcoming.