Dubai could change the face of real estate
Anyone following the world market knows that Dubai is in the middle of a meltdown and for those not following, you may not yet know that it could be detrimental to the United States. The commercial real estate sector in America is already struggling and not expected to see recovery start until 2011 and Dubai’s trouble could extend that forecast out even longer.
Dubai World is a massive conglomerate that has $59 billion in liabilities and recently said it will restructure its debt, setting off a global stock market selloff and on Friday, the DJUSRE (Dow Jones US Real Estate Index) fell 2.9%, almost double the decline of any other sector at close last week as Dubai World may unload prestigious properties across the globe (including the U.S.) at less than prestigious prices, driving down the price of commercial real estate. This means the already struggling MGM Mirage could be one of the properties to be dumped, along with W hotels in New York or Fontainebleu Miami Beach resort.
The “potential for contagion” is the critical threat to the US commercial real estate sector, said Sam Chandan, chief economist at Real Estate Econometrics LLC in New York. “It has the potential to spill over into the broader perception of real estate development and real estate as being a very risky area for exposure.”
This morning, the United Arab Emirates noted it could step in and become part of the restructuring process, but nothing is finalized as of yet. It’s a small world and we’re all connected, especially in real estate.
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Thoughtful article and one that highlights the importance of worldwide markets and its effect on the US economy. While European banks will be the first to feel the effects of a Dubai economic calamity, as you mention, with the connectivity of today’s world markets, U.S. commercial markets probably won’t be far behind.
Hopefully, at some point, we’ll all do a better job of risk analysis before the fact, or continue to learn painful lessons.
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Who knows, maybe some properties Dubai World dumps will be picked up by an American conglomerate and we bring home future margins, wouldn’t that be a nice end to the story?
Yes, it would!
Realistically, Dubai’s worries are probably limited to short term risk. Having been there a couple of times, it truly is the jewel of the Middle East in terms of commercial trade and tourism. In many ways, it is the Vegas of the area, and is a cultural anomaly.