The world economy and commercial real estate markets have been roiled by events unimaginable 90 days ago. Economies around the world are sagging, and capital investment flows are minimal. As a result, local property fundamentals are weakening, although they begin this weakening in a generally strong position.

How did this happen? One of my colleagues put it succinctly: The problem is bad lending decisions, compounded by leverage. This crisis started with sub-prime loans in the housing market, and escalated when it became clear that these loans were made without regard to whether a borrower could meet his/her obligations. Rather, the assumption was that housing prices would always rise, and if the borrower couldn't pay, the house would be sold and the lender would be repaid.

But the original lender didn't hold the loan. Rather, he/she packaged and sold it to investors all over the world, who in turn trusted the institutions in the United States, especially when the securities were rated AAA, and leveraged their investments. The sub-prime distrust evolved into counterparty distrust (Bear Stearns), to inter-bank distrust (widening TED spreads), to money markets distrust ("breaking the buck"), even to distrust that an insurance company can pay on its insurance contract (AIG). Each of these has eroded trust in the financial system and has led to systemic risk-not just in the U.S. but across the global economy.

This CBRE Global ViewPoint looks at the effects of the credit turmoil on commercial real estate around the globe on both the leasing and investing sides of the market. 1 am indebted to our terrific colleagues around the globe for sharing their insights and knowledge.