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The commercial real estate crisis has been looming for months and it looks as though it’s being held back by a finger in the dam.

It starts with the low mall occupancy rates. We’re already seeing store closings like Circuit City and if you walk around any but the most successful malls you’ll see closed storefronts aplenty. This trend is now flowing into the firms which own the malls, for example the current poster child General Growth.

General Growth has a mountain of debt and would, under normal circumstances, have filed for bankruptcy by now. From the Wall Street Journal: “Creditors so far have been willing to let deadlines pass because they believe there is little to be gained and much to be lost through a bankruptcy. General Growth’s mall operations are stable and many bondholders hope for a greater recovery outside of bankruptcy court.

“This is really rare,” said Kevin Starke, an analyst at CRT Capital Group LLC, a research company that tracks distressed securities. “It is corporate-bond limbo like I’ve never seen before.”

So how long can this hold out last? How long until the finger (not forcing debtors into bankruptcy) is pulled out of the dam? There is definitely a difference of opinion on whether the problem is the business of the malls themselves, or just too much debt burden – read some point, counterpoint from the UK on this here.

And worse – what will the fallout be beyond commercial real estate? We have many clients using FirstRain in the REIT (Real Estate Investment Trust) research process and as I used FirstRain to understand more about the commercial real estate market my interest was caught by the connection between life insurance and commercial real estate outlined by the Jutia Group. This Crisis is Just Starting to Hit the Headlines where the author predicts the fall:

Take MetLife for example. MetLife has $36 billion worth of direct exposure to commercial real estate… and less than $19 billion of tangible equity. A 25% drop in the value of its commercial real estate holdings would cut tangible equity in half. That would crush the stock.

MetLife isn’t alone. I’ve got my eye on 13 North American insurance companies. And all of them will take large writedowns due to commercial real estate and variable annuity exposures. At least one of them will fail over the next year.

I wish I were wrong about this. And I have nothing against any of the companies involved. Many are well run and, until now, had decent track records as good investors.

But they simply can’t get out of the way. They’re like giant hotels sitting on a sunny tropical shore… with an enormous tsunami headed straight for them.

Right now, it’s time to go short on the biggest U.S. life insurance stocks.

Definitely a trend to watch.

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