Commercial real estate lending was a disaster for America's banks in the 1980s; by 1992, the overall $1.2 billion commercial mortgage portfolio- the figure includes insurance companies-had seen its imputed equity wiped out and debt worth fifty cents on the dollar.

Seemingly fated to repeat history, banks are extending unsecured lines of credit to real estate investment trusts and lending against future cash flows routinely. Old-time pros are beginning to urge caution, wishing banks would imitate the insurance industry, which, with some pension fund advisors, uses elements of modern portfolio theory to manage real estate portfolios.

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