The contagion that started in homes in 2007 has spread to offices and shops. Commercial real estate (CRE)—one of several asset classes severely affected by the global crisis—has seen property values decline by over 25 percent in many markets, with some experts predicting an eventual drop of more than 50 percent for the worst affected regions. Most banks are deleveraging significantly, some to ensure their own survival; for many, this deleveraging includes a sharp curtailment of CRE lending. As a result, financing for CRE has dried up significantly. Some large property groups, unable to refinance as balloon payments come due, have already defaulted. A few have even filed for bankruptcy. In short, the commercial property industry and its lenders find themselves in the midst of a downward spiral.

Given this bleak outlook, there is perhaps no better time for a look inside the opaque CRE finance industry. Many CRE lenders find it difficult to understand how their performance stacks up against that of their peers. And few can say with any certainty how top performance is achieved. These gaps in understanding put banks at risk; if they misunderstand their economic performance, they will also likely miss critical opportunities to improve their business models. Such an opportunity might well be at hand as the financial crisis passes and the new reality sets in.