Still gun-shy from the most recent real estate debacle, bankers say they are lending carefully on construction-at least for now.

"Most commercial banks have vivid memories of the early 1990s," said George Emmons, Keybank's executive vice president of commercial real estate. "They must continue to see deals with equity and good preleasing."

Mr. Emmons' cautious tone comes at a time of tremendous opportunity in the real estate market. Hefty amounts of capital are flowing in to finance construction at a rapid pace.

Indeed, a recent report by Landauer Associates Inc. predicted "an acceleration of the construction cycle" that would last at least through 2000.

"The further we've gotten into the 1990s, the more investors of all kinds have recognized that this recovery is for real," said Hugh Kelly, Landauer's executive managing director of research and author of the report. "Lenders of all kinds have recognized that it is creditworthy again," he wrote of real estate.

So far, bankers have been careful not to overextend themselves, analysts said.

"Our typical banks are still not enamored" of real estate, said Anthony Davis, a bank analyst at SBC Warburg Dillon Read. "On balance the lessons of the last cycle have not been forgotten to date."

But some are beginning to wonder how long the discipline will last- especially in the face of increasing competition from investment banks and mortgage real estate investment trusts.

"The real question is, in 12 to 18 months, whether the banks are still sticking to their guns," said Mark Edelstein, a partner in the New York law firm of Milbank Tweed Hadley & McCloy.

"By and large, banks have been holding relatively firm to stronger underwriting criteria," he added.

At Keybank, Mr. Emmons acknowledged that with all of the new competition "there are pressures to increase" the amount of money lent for projects. His bank, however, does not lend more than 75% of a project's value.

Mr. Emmons' group intends to originate more than $4 billion of construction loans in 1998, given "good fundamentals, good preleasing, good sponsorship, and solid equity contributions into projects," he added.

Many say that the emergent securities markets for both commercial mortgage-backed bonds and REIT stocks are the "disciplinarians" of the industry.

The public markets hold about 6% of the value of U.S. property, according to Landauer. In the last two years REITs have gobbled up one- fifth of the $32.6 billion of commercial real estate acquisitions.

Meanwhile, commercial mortgage-backed securities issuance hit a record $43 billion this year alone, according to Commercial Mortgage Alert, an industry newsletter.

The huge REIT and commercial mortgage-backed securities markets do provide some capital safety for banks, Mr. Kelly said. But the health of those markets depends on the quality of bank real estate loans, he warned. "The properties and the loans have to be originated well in the first place."

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