Property values are down 40% and about $1trn commercial real estate (CRE) equity was lost since the sector peaked in 2007, according to research by Keefe, Bruyette & Woods. CRE prices are now at their mid-2003 prices, and this deterioration is primarily driven by a sharp decline in property prices, increased commercial mortgage delinquencies and reduced cash flow from lower rents, analysts Bose George and Jade Rahmani wrote. The analysts added the “primary story” in the commercial mortgage market in the coming years will be upcoming maturities, initially in the CRE market and later, in the commercial mortgage-backed securitization (CMBS) market. This decline is affecting real estate investment trusts (REITs), the financial services firm said, noting “while the shares of the companies are trading at or just below book value, we believe that investment opportunities in the commercial mortgage space remain only moderately attractive,” the analysts wrote. REIT initial public offerings in 2009 have seen mixed results and while there is a “significant need” for capital in the CRE market, “expected returns on capital that has been raised to date have been moderate, which is one of the reasons why the several other IPOs were not priced,” George and Rahmani wrote. Write to Austin Kilgore.