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CHICAGO-An August report from Jones Lang LaSalle shows global commercial property transaction volumes of $236 billion in the first half of 2008 were 41% below the record level for the same period last year. But despite the lower volumes, the report says the trend toward globalization of real estate ownership was maintained, with cross-border investment activity accounting for almost 45% of total transaction volumes.

“The fall in volumes was driven by global credit conditions which made debt both less available and more expensive,” says Tony Horrell, JLL’s CEO European Capital Markets. “As a result, many purchasers are unwilling or unable to transact at prices seen in 2007, while vendors are unwilling to reduce expectations. This has caused a stand-off between buyers and sellers, particularly for large lot sizes.”

Europe remained the leader of cross-border transactions, with 58% of deals involving foreign or global investors. The figure, however, was down eight points from the 66% recorded last year. Asian cross-border transactions saw an even steeper decline, dropping to 34% from 46%. North and South America, on the other hand, saw the figure increase to 30% this year from 25% a year ago.

But while the Americas saw the percentage of cross-border transactions rise, volume declined, resulting in a lower total value. Transaction volume dropped 56% to $75 billion, while total cross-border investment dropped 47% to $23 billion. In Latin America, transaction volumes were down, but the report names poor product availability, as opposed to the credit crunch or economic concerns, as the main culprit. Canada, however, defied the overall trend, with volumes rising by 54% to $7.4 billion. According to JLL researchers, Canada has remained relatively immune to the credit squeeze due to its traditionally conservative banking and financial sectors.

The US figures were especially dramatic, with volume down 61% to $64 billion, due in large part to the absence of the merger and acquisition activity that super-charged the market from ’05 through ’07. US cross-border transaction volumes fell 53%, from $37 billion last year to $19 billion this year. On a percentage basis, however, such transactions grew to 27% of the total, up from 23% a year ago.

“What surprised us is that a lot of the domestic investors and owners have woken up to the fact that there is limited domestic capital available today,” observes Steve Collins, JLL’s managing director of the International Capital Group. “The United States is now open to an international capital insurgence.”

Collins points to an emergence of new foreign investors in the US in the first-half of the year, including Spanish investors who purchased major retail and office product in Chicago, Irish investors like Vico Capital who bought 2099 Penn Ave. in Washington, DC and an active German investor base as evidenced by the $147.9 million purchase of Paseo Del Mar in San Diego by German Metzler NA.

Collins also notes the emergence of Korean investors with the successful purchase of One Sansome St. in San Francisco and bids for properties in Los Angeles and New York City. “The change in the Korean tax law has enabled Koreans to look favorably to the United States as an attractive investment area,” he says, adding that Middle Eastern investors are also keying into opportunities to invest through joint ventures, mezzanine positions and equity ownership, though they tend to focus on properties with prime locations and high marquee value.

The JLL exec expects to see an uptick in cross-border activity in the second-half 2008 as there is no lack of capital available and it needs to be invested into prime real estate to meet allocation requirements. “In the past 120 days, we have met with or talked to more than 25 investors looking to invest in United States real estate this year and beyond,” he remarks.

Though a number of foreign investors are still seeking “fire-sale” prices in the US, Collins says the market is unwilling to come through on such hopes. The same may not be true elsewhere, according to Horrell, who predicts it may take another year for debt markets to stabilize. In the meantime, he believes we are likely to see increased distressed selling.

“High growth markets or core markets perceived as oversold are likely to attract the most attention from buyers,” he says. “With high velocity of pricing change comes opportunity for buyers. The range of opportunity will increase for those able to commit equity in the next 12 months.”

According to the report, investors are also seeking out markets with lower transparency but solid growth fundamentals, such Latin America, particularly Brazil, Central and Eastern Europe and Asian markets like Vietnam. Researchers expect full-year investment volumes to be at least 35% below ’07 levels.

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