That default would be one of the first tremors of an earthquake about to roil financial markets: a commercial real-estate crisis mirroring the catastrophe in the residential market. October brought both the Stuy Town deal’s first death rattle and the bankruptcy of the real-estate financier Capmark. As annual bank failures topped 100 for the first time in almost two decades, Federal Deposit Insurance Corporation Chair Sheila Bair fretted over the threat posed to lenders by losses linked to hotels, malls, and condominiums. But even as this new impending crisis unsettles commercial lenders and borrowers, the story of its origins can shed new light on how we got into this larger financial mess in the first place.

Commercial mortgage lenders basically have to worry about two kinds of default risk: cash-flow risk, and asset-price risk. Cash-flow risk is what happens to homeowners when the primary breadwinner becomes unemployed, and to landlords or hotel owners when rental prices plummet. Since commercial tenants typically sign relatively long leases, this problem tends to grow slowly except in hotels—and, apparently, in rent-controlled properties with litigious tenants.

But the risk posed by falling asset prices is a big problem for commercial landlords, and for their bankers. The value of much commercial real estate is tightly linked to employment—if employers don’t have bodies to put at desks, they don’t need more rooms to put the desks in. With unemployment north of 10percent, and retail suffering, the nation’s stock of commercial real estate is suddenly less valuable than it used to be.

In some ways, price declines are a bigger problem for landlords than for homeowners. Unless forced to move, homeowners with long-term mortgages who make enough to cover their payments can sit tight and hope the market recovers. Landlords, however, typically take out commercial loans for shorter terms of three to 10 years. In normal times, landlords coming to the end of a mortgage simply roll the debt over into a new loan. But collapsing asset values have wreaked havoc on this process.

Now, as loans come up for renewal, lenders have to reassess how much credit they’re willing to extend. Take a property that was worth $100million in 2007, when it was financed with a four-year, $70million mortgage. That’s a reasonably conservative 70percent loan-to-value (LTV) ratio. But if the building is worth only $70million when it’s time to roll the loan over, keeping the LTV at 70percent means that the owners can now borrow only $49million, and have to come up with tens of millions to pay off the original loan. Worse, as the markets tighten, lenders tend to want to see a lower LTV in the deals they finance.

That suggests that a lot of commercial loans are going to go bad. According to Joseph Gyourko, a Wharton real-estate professor, at least $250billion worth of commercial loans are going to roll over in each of the next few years. When they do, many landlords will probably be caught short—and so will their bankers. Although most U.S. residential mortgages were bundled into mortgage-backed securities, only a fraction of commercial mortgages were securitized. Some bank or finance company still carries the rest on its books and will have to write them down if they can’t be rolled over; some of those banks will ultimately have to be taken over by the FDIC. As the banks’ loan portfolios are sold off, the write-downs of the underlying collateral will give bank examiners a new, lower reference price for the collateral held by other banks, possibly tipping those banks into insolvency as well. You get the picture.