The downturn in commercial real estate still seems to be getting worse.

By 2012, more than $1.4 trillion worth of commercial real estate loans will come due, according to investment firm ING Clarion Partners. Analysts at Deutsche Banks estimate that commercial borrowers will be unable to roll over three-quarters of the loans they took out in 2007, the worst year for toxic loans.

But the more serious problem is the quality of the underlying loans, analysts say, pointing to examples of pricey deals that went south within months of the original sale. Research firm Reis Inc. estimated that income projections made for properties that sold between 2005 and 2008 exceeded their historical performances by an average of 15 percent.

It was all based on assumption of cash flow, says Howard S. Landsberg of New York-based consultant Weiser Realty Advisors. If you couldn't afford to pay the bank back now, in three years you could count on another $20 a square foot in rent. When the numbers didn't add up, some lenders got imaginative.

Source: BusinessWeek, Mara Der Hovanesian and Dean Foust, with John Cady (11/13/2009)