The commercial real estate market is facing its worst year since the S&L and banking crisis of the early 1990s, according to a new report by Merrill Lynch.

"Our outlook is for property values to fall and CMBS credit problems to ratchet up," writes commercial mortgage-backed securities analyst Roger Lehman in a new report.

Merrill estimates that $23.5 billion in CMBS loans are set to mature this year — most of it conduit issuance. Property owners have been complaining for months that banks and other funders are unwilling to either lend or renegotiate loans at favorable terms.

The Treasury Department is toying with the idea of using Troubled Asset Relief Program (TARP) funds to jump start new issuance in the CMBS market but nothing has been decided yet.

How future TARP funds will be spent is now up to the incoming Obama Administration.

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