Investors' love affair with real estate is producing a record year for commercial mortgage-backed securities, signaling a further shift in real-estate financing from banks to Wall Street.

Cash is flooding into the market, where mortgages for skyscrapers, strip malls and other commercial properties are bundled together and sold off as bonds to investors varying from pension funds and insurance companies to hedge funds and wealthy investors.

That strong demand, however, is driving down the yields investors receive. And some bankers fear the rush into the bonds may even loosen lending standards, allowing real-estate buyers to borrow more and thus drive up property prices.

In other words, investors could be putting themselves at risk if their zealousness to lend by purchasing mortgage bonds causes property buyers to overreach.

"What is supporting real-estate prices?" asks Rob Brennan, who runs Credit Suisse First Boston's real-estate finance and securitization group. "It's the availability of competitively priced debt. That's thanks to the public CMBS market."

Real-estate owners borrowed $72 billion through CMBS debt in the first half of 2005, compared with a record $94 billion for all of 2004, according to the Commercial Real Estate Securities Association. The CMBS market has grown tenfold during the past decade, with about $500 billion of securities outstanding.

"CMBS is slowly eating away market share from traditional real-estate lenders like banks and life-insurance companies," said John Westerfield, a Morgan Stanley managing director responsible for real-estate lending. That may be why traditional lenders Bank of America Corp. and Wachovia Corp. now also happen to run the leading CMBS operations.

Sam Zell, a well-known real-estate investor and chairman of Equity Office Properties Trust, the biggest office-building owner in the country, believes that the CMBS market has removed some of the clubbiness in the industry, allowing people to raise funds even if they don't have relationships with bankers. "It's made the overall commercial real-estate market more viable to everybody," Mr. Zell said.

For CMBS investors, the insatiable thirst for yield in a low-yield world is driving much of the demand. While yields on CMBS bonds have fallen, they still offer higher payouts than most government and corporate bonds. But with so many players flooding the CMBS market, returns for investors also are less rewarding than in the past: According to J.P. Morgan, the yield on a single-A-rated CMBS dropped to 5.23 percent from 5.88 percent three years ago, while the yield premium the bonds pay above Treasury securities dropped to one percentage point from 1.35 percentage points.

"People are taking more risk for less reward," said Ken Cohen, a Lehman Brothers managing director who puts together CMBS deals.

Still, the yield advantage to other bonds is still attractive enough for many investors. Putnam Investments, for example, now holds CMBS in more than 10 percent of its active accounts, compared with less than 1 percent two years ago. "As long as (yield) spreads stay where they are, we're going to be heavily involved," said Rob Bloemker, managing director and team leader of the mortgage-backed securities and government group for Putnam.

Which is why some in the industry fear that real-estate owners will keep borrowing more and more, a real problem should the property market pull back. But it isn't just property buyers who are piling in.

"The real pressure is coming from the developers," said Mark Finerman, who heads the real-estate finance group for RBS Greenwich Capital. Indeed, gung-ho developers can get a loan to break ground on a new building in Manhattan for as little as a 5 percent down payment on the property.

The CMBS market grew out of the Resolution Trust Corp., which was created to sell off assets of failed savings and loans in the late 1980s and early 1990s. The RTC issued nearly $15 billion of commercial mortgages, which Wall Street firms soon found a way to turn into bonds, with each bond divvied up into individual "tranches" that allow buyers to pick their preferred level of risk.

But conventional developers were slow to adopt CMBS financing. They already had age-old relationships with traditional bankers and insurance companies. While CMBS offered better rates, developers disliked the restrictions against paying off debts early and making changes to buildings and having less contact with bankers.

"We stayed away from them for years," said Gentry Hoit, executive vice president of capital transactions for national office landlord Shorenstein Co. That was then: Recently, Shorenstein used CMBS debt to buy office towers like 125 Park Ave. in New York City and 45 Fremont St. in San Francisco.

The CMBS market seized up along with other credit markets in the wake of the 1998 Russian debt crisis, and the Sept. 11, 2001, attacks also scared off some investors who didn't want to own bonds backed by loans on any one property market. But the market came back, helped by the fact that more loans now routinely back each bond. That makes the bonds less susceptible to the fortunes of a few buildings.