Ugh.  Round 2 is here, and I don’t feel recovered from round 1 yet.  I was just pulling my head out of the sand to hide from the residential real estate bubble when the news is full ofinformation on Dubai World.  The development arm of the city/state of Dubai is asking creditors for deferments on payments from its 65 billion some dollar in loan amounts.  Dubai has become the symbol of the commercial property boom/bust cycle of the double aughts.  Architecture and design – bordering on the phantasmic- all built with borrowed currency.  But Dubai is nearly half a world away.  And yet we will still feel the shocks.  Their situation may become, unfortunately, even more familiar to us as we move into 2010.

Our commercial property owners are facing similar problems as the state of Dubai is.  Granted  we may not have committed resources to building the tallest building in the world, but our overriding issues are similar.  High unemployment leads to stagnant business earnings, which leads to companies downsizing space, foregoing plans to build/lease new space, and simply exiting the marketplace.  Excess capacity created during times of easy credit are only adding the second edge to a very painful period in time.  I firmly believe that our commercial real estate sector is staring at a similar fate that has befallen Dubai – notes (and short term interest only loans) about to come due; vacancies and capacity at all time highs; unemployment lingering near the dangerous 10% mark nationally; banks unwilling to extend more credit to upside down or significantly leveraged owners; very few buyers willing to either purchase the property or able to come up with the necessary level of capital to secure financing.

I have discovered over the course of my life that I am an odd species of capitalist – an Optimistic Bear.  I believe in the strength of our economy and systems.  I believe recessions weed out poor performers and punish poor choices.  They also create opportunity and are a very necessary part of the business cycle.  I also believe that we are about to see yet more defaults and distressed commercial properties.  I am bearish on commercial (and residential) property and new construction right now but optimistic that unemployment will eventually ease  once credit fundamentals have reached a sustainable level.  But we will have to define a new normal for the aggregate, as the level of construction spending in recent history is, I believe, an anomoly and will skew the averages. I hope that I am wrong, but I strongly believe the situation in Dubai is the beginning of commercial woes in our own country and not the symbol of the end.