Commercial real estate could be the next trouble spot for large U.S. financial institutions that are already saddled with significant risk from their residential real estate exposures, says Fitch Ratings.

In a new report the rating agency suggests that losses on commercial mortgage-backed securitiy (CMBS) collateral are likely to increase as the credit cycle progresses. Fitch projects CMBS delinquencies to double, and perhaps triple, by the end of the year.

That said, the firm also says that these exposures are unlikely to be a primary ratings driver for most U.S. large banks and brokers. “Most banks have fairly well diversified portfolios and have avoided the excessive concentration in commercial real estate assets that plagued the industry during the 1988 — 1992 real estate lending crisis,” said senior director David Spring. “Additionally, many firms with greater levels of exposure have already taken steps to reduce their holdings, while some brokerage firms have been able to successfully hedge exposures.”

CRE-related losses could be greater than projected if the economic downturn becomes longer or deeper, Fitch warns. But, it doubts that a repeat of the saving and loan crisis of the mid-eighties is on the horizon.

“The commercial real estate markets are not facing the same significant oversupply that plagued the markets in the late 80’ and early 90’s, plus tax treatment of commercial real estate projects has been relatively steady,” said managing director Bob Vrchota. “Financial institutions will continue to CMBS as permanent financing for future commercial real estate projects, though some players may retrench their activities somewhat in the near term in light of the current dislocations.”