Clear blue skies and swanky beachfront property gave the members of the 2008 Editorial Advisory Board for The Institutional Real Estate Lettera brief respite from the stormy capital market conditions of the past six months. Gourmet food, cocktail hour and beach volleyball aside, the participants were there to get down to business and discuss the changing investment market conditions and the effects on their commercial real estate portfolios.

During the second half of 2007, a group of investors — including opportunity funds, hedge funds and a few sophisticated debt investors — used credit default swaps against single name CMBS and the CMBX indices to completely reprice the cost of real estate debt and equity. Today, similar investors are pushing down the price of property derivatives traded against the NCREIF Property Index (NPI).

The triple threat of a massive credit crunch, a sharp economic slowdown and turmoil in the equity markets keeps U.S. real estate investors up at night, worrying about their portfolios. Those who ventured into international real estate in recent years are sleeping much more soundly. Higher growth rates abroad and a falling U.S. dollar are boosting some international real estate returns to levels that exceed the performance of domestic portfolios.