ANALYSIS - Dubai debt woes may hit U.S. property market

By Elinor Comlay and Jonathan Stempel

NEW YORK (Reuters) - Dubai's debt woes could further unhinge an already fragile U.S. commercial real estate, as it illustrates the importance of that tiny country to global investors in an increasingly interconnected world.

A state-owned investment conglomerate Dubai World, with $59 billion of liabilities, set off a global stock market selloff this week after it said it wants to restructure its debt, including at its property subsidiary Nakheel.

"This downturn has had more of a global impact," said Tony Ciochetti, chairman of Massachusetts Institute of Technology's Center for Real Estate in Cambridge, Massachusetts.

"As I try to explain to my students, with a global economy, we're all attached at the hip financially in some way, shape or form," he added.

The Dubai news also cast doubt over the strength of the fledgling U.S. economic recovery, and the prospects for a bottoming of property prices.

On Friday alone, the Dow Jones U.S. Real Estate Index fell 2.9 percent, nearly twice the decline of broader U.S. market indexes.

"Dubai may have to unload some very prestigious properties at distressed prices and this will drive the price of all commercial real estate lower," wrote Richard Bove, a banking analyst at Rochdale Securities in Lutz, Florida.