ALL BUSINESS: a Tale of Two Real Estates

Sure, tightening credit and a slowing economy are leading retailers to close stores. Yes, architects are seeing a noticeable decrease in demand and prices are expected to come down for office towers, malls and warehouses.

No, it's not as ominous as some investors are making it out to be.

Delinquency rates on commercial mortgages remain very low and the risks aren't the same as with residential loans.

The pessimism building on Wall Street is showing up in an index called the CMBX, which tracks the values of bonds backed by commercial mortgages on such things as malls, hotels and office towers. Investors can choose between four series of indexes, each broken down by credit risk ranging from triple-A to triple-B-minus.

The way trading has gone in recent weeks says that commercial real estate is doomed, which is raising fears about more big write-downs hitting the nation's already battered banks and about continued volatility in financial markets.

The index has been soaring, indicating that investors see increased risk in commercial mortage-backed securities. Some of that move is being driven by short sellers who are using this index to bet against the commercial market, according to analysts at the independent research firm CreditSights.

Goldman Sachs is forecasting future losses on commercial mortgages of as much as $183 billion, but says the CMBX index is pricing a loss of $199 billion 8 percent higher.

Consider that last October, it would have cost $35,000 to insure a $10 million basket of triple-A rated 2007 commercial mortgages which should be the least vulnerable to potential losses against default. That shot up to $65,000 at the end of last year and jumped to over $200,000 last week. It is now trading around $185,000.

Why is the market pricing in so much fear?