Nov. 7 (Bloomberg) -- Commercial real estate borrowers are running out of options as asset-backed markets dry up and alternative financing comes to an ``abrupt halt,'' RBS Greenwich Capital Markets Inc. analysts said.

Regional banks and insurance companies, which had become the primary source of financing since credit markets seized up, have stopped lending, the RBS analysts wrote in a report. Sales of bonds backed by commercial mortgages slumped to $12.2 billion in 2008, compared with a record $237 billion last year, according to JPMorgan Chase & Co.

The government's attempts to unlock credit markets is easing some borrowing costs in some markets, though won't relieve the seizure in the commercial mortgage debt market, Pendergast said. The Federal Reserve took unprecedented action to revive short-term lending, setting up a facility to buy 90- day commercial paper from companies and a program to purchase asset-backed commercial paper from money-market mutual funds.

``The de-thawing of the shorter-term lending markets is a welcomed first step,'' according to RBS analysts led by Lisa Pendergast in Greenwich, Connecticut. ``However, it is a baby step and will have little effect on commercial real estate lending near term.''

Both regional banks and insurers are reigning in lending, Pendergast said. The insurance industry is under review by ratings companies and may be downgraded, while not yet receiving permission to participate in the Treasury's capital injection programs, she said. Regional banks remain ``under significant pressure,'' Pendergast said.

``Like life insurance companies, indications are that many of these banks have closed their books for the year and 2009 remains a big question mark,'' Pendergast said.

Loans Coming Due

The dearth of financing options will make it challenging for borrowers with loans coming due in 2009. About $88 billion in commercial real estate loans will mature next year, RBS estimates. Between 2009 and 2011, $123 billion in loans that have been packaged into bonds will mature, which doesn't include direct loans originated by banks or insurance companies, the analysts said.

Top-rated commercial mortgage-backed securities are trading at a record 633 basis points more than the benchmark swap rate, according to Bank of America Corp. data, compared with 318.8 basis points on Sept. 15, the day Lehman Brother Holdings Inc. filed for bankruptcy. The bonds were trading at about 70 basis points more than the benchmark a year ago, the data show.

Spreads on commercial mortgage-backed securities probably won't narrow enough to make it economical for investment banks to originate new loans until late 2009 at the earliest, and more likely not until 2010, the analysts said.

Delinquencies on commercial real estate debt rose to 0.78 in October compared with 0.66 percent in September, RBS Greenwich data show.

To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

Last Updated: November 7, 2008 10:18 EST