Sales of bonds backed by commercial real estate loans may fall this year to the lowest level since at least 1996 as investor demand for the debt slumps.

In the first half commercial mortgage-backed securities offerings dropped 91.1% from a year earlier, to $12.2 billion, according to analysts at JPMorgan Chase & Co. The analysts, along with counterparts at Moody's Investors Service Inc. and Royal Bank of Scotland Group PLC, have cut their full-year forecasts.

The JPMorgan Chase analysts now say this year's sales will fall to $20 billion, the lowest total since 1996. Last year a record $237 billion of the securities were sold.

"It's not at all unreasonable to think that we may be done for the year, unless something changes very rapidly," said Jan Sternin, a senior vice president at the Mortgage Bankers Association.

Wall Street "is not originating new loans, and there is no reason to believe it's going to change any time soon," she said.

U.S. commercial mortgage-backed debt that carries a triple-A rating and will mature in 10 years is currently yielding 154 basis points more than benchmark swap rates, compared with 30 basis points a year ago, according to data from Lehman Brothers. The spreads widened to more than 300 basis points in March, just before the Federal Reserve Board backed JPMorgan Chase's deal to purchase Bear Stearns Cos.

Derrick Wulf, a money manager at Dwight Asset Management Co. in Burlington, Vt., said the higher cost of selling the bonds makes it unprofitable for Wall Street to originate loans to package into securities. "This market is coming back," Mr. Wulf said. "It's just going to be a little slower than we had hoped for six months ago."

Jim Duca, a managing director in the commercial mortgage-backed securities group at Moody's, said borrowers have been seeking alternative sources for financing, such as small commercial banks and insurance companies, since Wall Street stopped making loans. These alternative sources will not supply funding forever, he said.

Royal Bank said this year's sales may be as low as $15 billion. Moody's now puts the figure at less than $20 billion, versus previous forecasts of $100 billion late last year and $35 billion last month. Citigroup Inc. analysts cut their projection in March to a range of $25 billion to $40 billion, from a range of $86 billion to $100 billion at the beginning of the year.

Bank of America Corp. and Barclays PLC sold $1.29 billion of debt backed by commercial mortgages June 19. The largest triple-A portion was priced to yield 147 basis points over the benchmark swap rate.

Alan Todd, the head of commercial mortgage-backed securities research at JPMorgan Chase, said bankers are not as willing to lend money to investors seeking to buy the debt, making it harder to boost returns using borrowed cash.

"Investors view the world in a less leveraged framework and are demanding higher returns on the securities they buy," he said.

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