Dubai World's credit problems are not going to seriously affect the economy of the US, but are they a forewarning of things to come? We have been hearing about the coming Commercial Real Estate Crash in the US. Well, it has happened in Dubai where overbuilding has led to a glut of space and no money to pay the mortgages. While the government of Dubai could step in and take responsibility for the debt, it appears they are unwilling to do so.
What are the risks to the US economy?
From WSJ - The (US's) $3.4 trillion outstanding in debt backed by office buildings, shopping malls and other commercial real estate is easily large enough to pose a real threat to the recovery.
The Moody's/REAL Commercial Property Price Index has lost 43% of its value since peaking in 2007, recently falling to its lowest level since 2002. As commercial property values fall, debt defaults rise.
This problem has been well-telegraphed and will likely take a long time to unwind—through 2012, according to Guy LeBas, fixed-income strategist at Janney Capital Markets. That might lessen the impact on financial markets.
But much commercial real-estate debt is held by regional banks that aren't too big to fail and that, during this slow unwinding, might be hesitant to lend more money. That should, at the very least, keep the brakes on the economic recovery.
From Bizjournals - The commercial mortgage-backed securities market has collapsed – there has not been a single issuance since mid-2008. If this huge monster lumbers unchecked, it has the potential of massive portfolio destruction, devaluation and crumbled investor confidence in the capital markets, and in any hope for rebound of commercial real estate any time soon. Our industry agrees this must not happen and looks for the Fed to exhibit strength and competence in the form of meaningful legislative rescue driven by private sector ideas.
Let's hope we can all hang on for the ride.Buying Office Space , Commercial Real Estate , Office Space , Office Vacancy Rate