At an Urban Land Institute gathering in Santa Ana, Muzak in the lobby played A Fine Frenzy’s “Goodbye My Almost Lover” as commercial real estate execs sang a similar tune inside First American Corp.’s Garden Room. But the 90-minute talk on “Surviving the Credit Crunch” could have been labeled, “Goodbye Financing.”

With speakers likening the market to “the law of the jungle,” the ULI session Thursday was short on survival tips and long on how bumpy things will get for commercial investors and developers in the next three years.

“Right now, it’s all about survival for us,” said Peter Grabell, executive vice president of Bridger Commercial Funding, a Mill Valley-based firm specializing in commercial mortgage-backed securities (CMBS). “We’re just trying to hang in there until the market recovers.”

Speakers said some of the same risk-taking problems that plague the housing market are impacting commercial real estate, with lenders tightening underwriting standards and funding only less-risky “vanilla” loans. The commercial market has some of the same problems with risky loans and overvalued properties that caused the housing market’s subprime meltdown. Speakers said commercial real estate is going through “a slow burn” that will take years to work through the system.

“I just can’t see light at the end of the tunnel at this stage,” said Gary Farmer of Long Beach, regional president for Northwestern Mutual, a financial services firm.

Here’s an overview of what was said:

Bridger’s Grabell: 80.3% of bankers said in a recent survey that they were tightening their lending standards. The volume of commercial mortgage-backed securities dropped from $47.8 billion in the first quarter of 2007 to $3.6 billion so far this year. CMBS and another mortgage security, collateralized debt obligations or CDO’s, made up 57% of all commercial real estate loans in the summer of 2007, before the credit crunch. “Now, who’s going to step up to provide capital?” Grabell asked. “There’s clearly a huge gap that needs to be addressed.”

Ren Hayhurst, partner in the Irvine office of Bryan Cave LLP & Co.: $150 billion in securities can’t be sold. Shops set up to service assets for 30 to 90 days are now gearing up to deal with them for a year or more. Businesses need to start the process of looking for alternative sources of funding now, first talking to their existing lenders and funding sources. But they also need to expand their sources of funding. “The money is out there, but you have to turn over some stones (to find it),” he said.

Northwestern Mutual’s Farmer: “I just look at this as a very slow burn. There have been some economic shocks … and those rubber bands are going to continue to reverberate through our commercial (market),” Farmer said. He doubted that the slump will be as bad as the 1990s, saying that the fundamentals of real estate and the overall economy remain strong. But there’s “this slug of paper that can’t perform,” he said. “Exactly how many players are going to end up in the tank is really the wild card in this situation.”

George McNee, vice president multifamily acquisitions for AEW Capital Management LP: Predicted that the commercial market will improve by September, unless there are “more catastrophic events” like the Bear Stearns collapse. If so, “that gets pushed back to the end of ‘08,” he said. The company’s strategy is to go slow for the first six months of this year, target tier 1 markets and avoid fringe markets and steer clear of “forward commitments,” such as properties that are not fully leased. “Recession or not, ‘08 is going to be very tough,” he said.

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