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Commercial investment plunged in 2008

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CHICAGO -- U.S. commercial property investment plunged 70 percent to $125 billion last year as banks granted fewer loans and the commercial mortgage-backed securities market shut down, Jones Lang LaSalle Inc. said.

Transaction values may fall as much as 25 percent this year, Jones Lang said Tuesday in a report.

Potential purchasers with an estimated $300 billion to invest in U.S. real estate are waiting for the market to improve before buying.

"The delay is coming from owners and investors who are just now coming to grips with the new realities of today's market," Earl Webb, Jones Lang's chief executive officer of capital markets, said in the report. "As market fundamentals continue to weaken in 2009, values may continue to erode."

Banks restricted credit to strengthen their balance sheets in the wake of losses and writedowns totaling $1.05 trillion resulting from investments in mortgage-related securities.

In the fourth quarter, 87 percent of banks tightened lending standards for commercial real estate, according to a survey by the U.S. Federal Reserve cited by Jones Lang (NYSE: JLL).

Delinquencies and defaults are likely to rise this year as a result of falling rents, Jones Lang said.

Many of the loans underwritten between 2005 and 2007 contained "aggressive rent growth assumptions that will be unsupportable in 2009," the broker said.

Borrowers able to obtain lending will be in a position to take advantage of lower interest rates, according to Jones Lang.

"As more owners face upcoming maturities that cannot be refinanced, an unprecedented opportunity is emerging for investors in distressed debt and CMBS," Webb said.

The commercial mortgage-backed securities market slumped 95 percent last year to $12.1 billion, with no CMBS issuance after June, Jones Lang said.

That contributed to a drop in prices of more than 30 percent, the company said.

Private equity funds and investors from outside the U.S. will get opportunities to increase their market share as debt levels subside, said Steve Collins, managing director of Jones Lang's international capital group. "In 2009 we expect to see increased market participation by foreign entries into all levels of the capital stack."

Investment is also falling outside the U.S. Capital transactions in Europe slumped 55 percent in 2008, according to Jones Lang.

Corporations may try to raise capital from sale-leaseback transactions this year, the broker said.

Inquiries from corporate clients have quadrupled in the past 18 months, the company said.

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