Friday Letter Decline and fall

The data won’t lie – there are far fewer deals being done around the world than this time a year ago. 

Everybody knows there are almost no deals to be done thanks to the freeze in the credit markets. Now though we can put a figure on how few transactions have closed globally in the past year. Less than half compared to the first half of 2007.

New research from data provider Real Capital Analytics this week has revealed that in the 12 months to August this year, worldwide property transactions fell by 57 percent, with just $387.7 billion worth of assets changing hands.

The US was the worst hit country seeing transactions drop-off by 77 percent during the past year. It was joined by Australia and New Zealand, which saw deals decline by 74 percent in the same period and the UK, where deal flow fell by 55 percent.

Only the Middle East, Eastern Europe, Japan, India and Latin America saw any growth in their respective commercial real estate activity – however that isn’t expected to last long, with expectations that even these markets will take a significant hit in the third quarter of this year, with many regions entering negative transaction territory.

According to the RCA Global Capital Trends report, not one country in Asia is expected to report positive property transaction figures next quarter when compared to the previous 12 months. Overall, the volume of property deals globally in the third quarter is expected to be 64 percent less than the 12 months prior.

It’s a clear demonstration that the credit crunch that started out in the US and spread to Western Europe, is now spreading to the emerging markets, and notably Asia, as well. Already this week in Japan there has been news of the country’s first J-REIT bankruptcy, New City Residences, which filed for bankruptcy protection with ¥112.3 billion ($1.1 billion; €831 million) in debts.

However despite the lack of available credit, private equity real estate deal guys are finding ways of investing in the distress currently being seen – by forming joint ventures with other equity partners.

According to RCA, 39 percent of all intercontinental property deals involved JV partners, while 42 percent of all property deals over $250 million involved a joint venture. Where there’s a will…