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The De-Leveraging of Global Real Estate

Working paper #685
Jacques N. Gordon and Richard Kleinman

The credit crisis of 2008-2009 highlighted the importance of debt to the financial structure of capital intensive asset classes like real estate. An examination of international real estate markets shows how the level and type of legacy debt issues will affect each country going forward. The use of debt varied widely around the world. It ranged from countries with high debt levels, relative to both GDP and asset values, and a large share of securitized debt (the U.S. and U.K.), to countries where bank financing dominated (Australia and Japan ) and others that were much less leveraged overall (Canada). These differences will affect how legacy debt issues are addressed, when a market will return to a normal financing environment, and the environment for equity investing going forward. The impact of regulatory actions and the policy response to de-leveraging will also be significant when looking across international markets.

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