How might Dubai World’s debt problems hurt commercial real estate markets in the U.S.?



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    Dubai World is one of the world’s largest investors, owning real estate and stock portfolios in numerous countries. The company is partly owned by the government of Dubai, which as you might imagine is extremely wealthy. However, the company has had problems. In the fall of 2009 it announced that it was behind on a substantial part of its $60 billion in debts and asked creditors to defer payment until sometime in 2010. This had a ripple effect throughout the world economy, causing stocks to fall and currencies to fluctuate. Just today (March 25, 2010) the government of Dubai announced it would spend $9 billion to bail out the giant conglomerate. What does this mean for US real estate markets? Probably not that much. The main problems with our real estate markets are domestic and have little to do with foreign ownership. Certainly the US properties that Dubai World is invested in have lost value, but then again most real estate has. The 2008-09 economic crisis was driven mostly by a decline in residential real estate prices and the resulting mortgage foreclosures. Commercial real estate always lags behind. I’m not sure we have yet seen the bottom of the commercial real estate market, even if residential properties have begun to recover (at least a little bit). Aside from some temporary shocks I think Dubai World won’t have that much effect cumulatively.

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