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Global real estate investors seek to diversify holdings
There is currently over $1 trillion (Dh3.67 trillion) outstanding in commercial mortgage-backed securities (CMBS) in the US, due to the global financial crisis.
- By Suzanne Fenton, Staff Reporter
- Published: 22:50 November 8, 2008
Dubai: There is currently over $1 trillion (Dh3.67 trillion) outstanding in commercial mortgage-backed securities (CMBS) in the US, due to the global financial crisis.
"The CMBS in the US and Europe is moribund," Steve Wechsler, president of the National Association of Real Estate Investment Trusts (NAREIT), said.
In the next several years, many loans are due as the duration of five to seven years is nearly over and so a substantial number of these loans that are due in 2009, 2010, 2011 and 2012, means the refinancing gap will grow.
"People will need to refinance and to refinance there has to be a banking system prepared to facilitate that," Wechsler said.
"The ability of the financial system to deliver credit has been compromised and that's a very serious issue. Governments are working to address the situation and one particular problem facing real estate is that the CMBS market grew considerably in recent years and provided substantial amount of credit for commercial real estate," Wechsler said.
The mortgage-backed securities system in the first half of this year in the US was $12 million and the immediate prospects of the market coming back are very low, according to Wechsler.
"The concern about the real estate system begins with concern about the world financial system," Wechsler said.
Trend
As for the global commercial real estate, Wechsler said it has become "cross-border", with many institutions investing outside their home countries.
"What we're seeing is investors around the world looking at real estate as an asset in which they'd like exposure on a diversified basis."
And part of diversification is geographic. "Whether it's in the Gulf or Europe or Asia or the Americas, there's an interest in diversifying real estate investment in different regions. Both inbound and outbound, there are cross border capital flows," said Wechsler.
These capital flows will continue to be a healthy part of the world's investment construction and real estate companies are looking to investment opportunities inside their home countries and abroad.
"The financial crisis may reduce that trend for a time. But there's no reason in the world, why, if I'm living in Washington DC, I shouldn't be able to benefit from the cash flow of properties and businesses in the Middle East or wherever," Wechsler said.
For commercial real estate, including shopping centres, office buildings and hotels, the effect of the crisis has been large.
The effect of the world financial crisis on commercial real estate is significant. The banking system in the US and much of the developed world is under severe stress and commercial real estate, in particular, uses a significant amount of capital.
"So we have a paradoxical situation in many places in the world, which is the underlying real estate business, collecting rent, having tenants, is still doing reasonably well, all things considered, but it's weakening," said Wechsler.
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