GLOBAL - Concerns that Dubai World's need to deleverage will place a downward pressure on global real estate prices are unfounded, according to Dan Fasulo, head of research at Real Capital Analytics. Yet officials at real estate specialists Hatfield Phillips disagree.
Some analysts have warned that forced sales from the distressed state-owned developer and investor could lower commercial real estate prices in markets like North America and Europe.
Dubai World and its subsidiaries last week asked its investors to give them a six-month break from debt repayments, sparking concerns of a fresh credit crunch and downturn in the global financial and property markets.
However, Fasulo said Dubai World as a single entity "just doesn't own enough" to have such an impact.
That said, there could be "heavy damage" for commercial real estate predominantly in Dubai itself, he suggested, although Fasulo predicts there will not be "a massive fallout for commercial real estate" anywhere else.
Not only is Dubai World a relative newcomer in terms of global real estate transactions, but most of the assets they have acquired are likely to attract a number of bidders, making it unlikely they will be sold at ‘distressed' prices, he continued.
"If someone is expecting absolute fire sales on those assets, they would be completely mistaken," Fasulo said.
"We have seen that some of the trophy assets which have come to the market, even in this difficult environment, have seen a significant amount of demand from a variety of different investors."
The only area where Fasulo does expect Dubai World to experience significant transactional losses was on some of its various developments projects around the world.
Many of these are very ambitious, including the Fontainebleau Hilton development in Miami, and were put in motion before the financial crisis and global economic downturn.
"Most of the major projects just don't make sense in the current fundamentals environment," said Fasulo. "And I do expect them to take a major hit on some of those incomplete development projects."
Commercial real estate loans specialist Hatfield Philips, however, has warned that Europe may experience a ‘double dip' in its commercial property markets next year.
Matthew Grefsheim, director of special servicing at Hatfield Philips said the Dubai World debacle had increased the likelihood of this happening.
Grefsheim argued that property values in Europe had risen artificially as a result of a lack of supply of investable stock.
This trend, combined with the Dubai World collapse, could lead to a rush of property owners marketing their properties in the spring and summer of 2010, he said, potentially leading to oversupply and a fall in prices.
"A double dip, whilst not guaranteed is a real possibility and this has been heightened by the recent news regarding Dubai World.
"What we hope to see is a gradual return of liquidity, and not a sudden surge as this could depress prices across the board, and could pose a threat to any loans and therefore properties that are already in default.
"The recent news regarding Dubai World accentuates the potential for a double dip in the commercial real estate markets and the economy as a whole.
"We hope that investor confidence continues to increase or remain stable, but a flight to safety would have a negative effect on the market."