During the capital crisis, bond investors exited real estate like disaster victims fleeing a burning building.

Industry participants now agree the market for commercial mortgage-backed securities (CMBS) will eventually recover. However, the set of investors that returns will be much smaller than the wolfpack that chased CMBS deals in recent years.

“Some people aren’t going to come back,” said Jun Han, a researcher for the Commercial Mortgage Securities Association.

Once the market stabilizes, CMBS experts expect insurance companies, banks, and pension funds that invested before the boom to begin buying the securities again.

“Every week a pension fund gets that dues check,” said Tom Nolan, managing director of CWCapital Asset Management, an investor in B-piece CMBS. That money will need to be invested, and CMBS will offer an attractive yield. “They are going to be back in the market,” Nolan said.

Allstate expects to buy CMBS in the future, according to Michael Moran, senior portfolio manager of real estate investments for Allstate Investments, LLC, a subsidiary of the insurance company. But the firm isn’t saying when or how much. It has $120 billion under management. Of that, $20 billion is invested in commercial real estate, including $6 billion in CMBS Allstate bought before the crash.

Originators issued a record $230 billion in CMBS in the United States in 2007, nearly three times the $78 billion sold in 2003, according to Moody’s Investors Service.

To originate the commercial real estate loans that backed those billions in bonds, conduit lenders offered whatever it took to make deals, from full-term interest-only financing to high leverage. Conduit loans, originally an alternative for borrowers that couldn’t qualify for Fannie Mae and Freddie Mac financing, began to undercut Fannie and Freddie on interest rates.

High-leverage investors made the boom possible. By 2006, money from hedge funds and opportunity funds made up 41 percent of the investment in AAA-rated CMBS, according to RBS Greenwich Capital, compared to just 4 percent in 2002.

Hedge funds often put up less than 20 percent of their own capital when buying CMBS, inflating their potential profits and their risk of loss. When CMBS prices collapsed last year, the lenders demanded cash in margin calls that forced hedge funds to sell, flooding the CMBS market.

Now those hedge fund investors are unlikely to return. “U.S. CMBS should be viewed as a $50 billion to $100 billion per year business that spiked to $200 billion during a credit bubble, rather than a $200 billion business having an off-year,” said Nick Levidy, a Moody’s managing director.

If the CMBS business has to rely on the investors it had before the boom, that level of demand will keep CMBS yields as high or higher than they were back then, even after recovery finally comes to the market. In 2002, average yields for AAA-rated CMBS were nearly half a percentage point higher than yields during the boom years, according to Greenwich.

“I don’t think it [CMBS pricing] will ever come back to what it was,” said Allstate’s Moran. “There has been a permanent re-pricing of risk.”