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.

Cigna Corp., for instance, the $99- billion Philadelphia insurer, uses a home grown portfolio analyzer and an accounting system bought from Quantra Corp. to manage its $11.4 billion commercial mortgage portfolio, says Frank Sataline, vp of mortgage portfolio review.

Cigna examines every loan at the real estate level once a year, "looking at values, net income, our read (on the local market), and how our loan's loan-to-value and debt-to-equity margins are performing and is expected to perform," Sataline says. Cigna compares its figures to data from local mortgage correspondents, and separately analyzes each building's discounted cash flow. Looking at the portfolio at the micro- and macro- levels, "helps us see trends that sometimes aren't so evident."


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