Capital markets accessed via Wall Street have helped to solve a liquidity crunch for the commercial real state industry during the past five years. Some observers, however, have questioned whether Wall Street will continue to serve as a competitive source of capital through the remainder of the decade.

Not only is there plentiful supply of real estate money from Wall Street, but there appear to be more investment banks wanting to get into the business. These investment banks are willing to risk their own capital to create large pools of mortgages that they can sell in the secondary market, and thereby make tremendous profits from the spreads that they realize through the resale of these mortgages.

As most traditional sources of real estate capital dried up about five years ago, Real Estate Investment Trusts (REITs), conduits (pools of money organized by investment bankers) and direct lending by the investment banks evolved as a new source of capital for real estate borrowers. Without this capital injection from Wall Street, the recovery that has begun in many real estate markets would not otherwise be happening now.

Sam Zell, considered by many as one of the most savvy and contrarian real estate investors in the country, believes that the future of real estate ownership is in the consolidation of assets into large institutional pools. Zell has raised over $1 billion of equity and debt from the capital markets via Wall Street. and he has invested several hundred million dollars in Southern California over the last 18 months.

Nearly every major institutional lender is back in the market. Life insurance companies, pension funds, commercial banks and credit companies are all lending on real estate-backed assets. Steve Graves, second vice president of The Principal Financial Group, commented: "We are having a stupendous year. Our year-to-date loan volume is approximately $2.3 billion, and we could reach $3 billion by year end."