Dubai and Abu Dhabi, the UAE’s most prominent neighbors, share a historically complicated and famously competitive relationship. However, Abu Dhabi is unlikely to risk tarnishing its global banking relationships and will ultimately provide a resolution to the $60 billion Dubai World debt. But the question still begs, is the news from Dubai nothing more than another blip on the radar screen or does it point to a much larger issue? Dubai, whose landscape is marked by construction cranes, is almost exclusively a real estate and lodging driven economy. Its $60 billion dollars of debt represents a frightening 90% of its GDP (primarily real estate-related), but only 20% of the UAE’s overall GDP. The total value of outstanding debt backed by office buildings, shopping malls and other commercial real estate is $3.4 trillion according to the Wall Street Journal. However, it is unlikely that bankers or politicians will find it a convenient time to start turning over this rock. The last thing that either party needs is a second leg down caused by a commercial real estate panic.
The reaction to Dubai’s news in global equity markets suggests this event was largely unexpected and left many wondering―are enough investors talking about commercial mortgage-backed securities (CMBS) risks? For example, reports came out that the September 2009, 3.9% CMBS delinquency rate was many times higher than the .54% rate from September 2008. Over the same time period, CMBS Special Servicing exposure also rose from less than 1% to over 6.5% and CMBS Special Servicing Unpaid Balances grew significantly higher from less than $10 billion to over $50 billion.
Logically, Dubai, as the real estate-based economy could serve as a barometer for the global real estate market. If the situation in Dubai is only the beginning of things to come, than investors should be increasingly wary of equity and bond markets coming into the new year.
Posts
No comments:
Post a Comment