China continues grabbing headlines in a way that is impossible to ignore or skip over easily, as these events have clear implications for investors in real estate. The big news now is that China has become the second largest economy, displacing Japan from the spot it held for nearly four decades.

Although still well off their 2007 pre-crisis peak, great performance strides have been made by REITs globally as all asset classes and markets around the world work to re-emerge from the lingering specter of the global financial crisis. Some Asia Pacific REIT markets continued their struggle in first half 2010 to find equilibrium and fully recover as second quarter 2010 worries focused on sovereign debt concerns in Europe, the potential for a double-dip recession abroad and residential market policy initiatives in China and Hong Kong aimed at slowing the rate of price growth.

The U.S. commercial real estate market is in the early stage of a cycle that will be dominated by the restructuring of distressed debt. It remains to be seen how long the cycle will last and how severe the distress will be, but there is no doubt that the market will not regain its balance until the vast majority of distressed debt — completed through scores of individual property recapitalizations — is resolved. This is also true in much of Europe and Japan, and many fear it will also be true in other parts of Asia, but this article discusses only the U.S. market.