Last Friday’s news that Dubai World is not going make payments on US$ 59-billion in debts adds to a mélange of global economic factors influencing the World economy and in various ways directly and indirectly the Canadian real estate markets.
Imagine if this news were announced three years ago, in the absence of information about the financial crisis that has gripped the world for the past year. It would have hijacked almost any headline in Canada but this weekend the Grey Cup results and various domestic tragedies have already taken precedent. (Well in this case perhaps the Grey Cup trumps World Dubai. Phew! What a game!)
There are Canadian companies that are active in construction and development in the Middle East and some in Dubai who are likely severely impacted by the trouble at World Dubai and related companies. Canada’s expertise working in severe climates where extreme cold and hot have common characteristics is a valuable resource in the region. Other companies have invested and participated in development there to get a foothold in another part of the World and diversify their business.
What is particularly note worthy is that Dubai World’s distress is sandwiched between a year and half long financial crisis in the U.S. and the impending unwinding of billions of dollars of lousy commercial real estate debt in the U.S.
This U.S. financial crisis is highlighted by the failure of Lehmann Brothers, the take over of Merrill Lynch by Bank of America, the largest bank failure in U.S. history with the collapse of Washington Mutual and the take over of mortgage giants Fannie Mae and Freddie Mac by the U.S. Government to mention the most significant of the events of the past year. In addition there is the provision of about a trillion of US dollars stimulus dollars and an annual US operating debt also of about a trillion dollars.
The other half of the sandwich is distressed commercial real estate debt in the U.S. It is considered to be in the area of U.S. $1.4 trillion dollars plus an additional $600 million in Commercial Mortgage Backed Securities that are to come due over the next three years. Smaller banks that may not be able to carry the losses hold a significant portion of the debt.
Today we learned from a report in the Globe and Mail that the Toronto Dominion Bank may have as much as $19-billion invested in commercial real estate in the U.S., some of which is likely distressed, more than originally reported. There may be other Canadian financial organizations that may also announce that their financial position has worsened due to continuing declines in the value of U.S. commercial real estate. Individual Canadian investors not subject to public disclosure of their activities are no doubt affected.
The Global Property Market to be held tomorrow, December 1st, in Toronto where experts in the Worlds commercial real estate are presenting their perspective on these issues is sure to be a highly informative event.
Please check Twitter (RENXca) for RENX blow-by-blow coverage of the event. RENX will also be providing a follow-up article to the GPM this week.