(Bloomberg) -- U.S. commercial real estate prices may fallas much as 5% in the next 12 months amid tightened regulations, awall of debt maturities and property sales by publicly tradedlandlords, PacificInvestment Management Co. said in a report Monday.

A global surge in demand for U.S. property investments thatpushed real estate values to records may wane as slowing growth inChina, lower oil prices and dislocated debt markets threaten tohalt six years of price growth, Pimco portfolio managers JohnMurray and Anthony Clarke said in their report, titled“U.S. Real Estate: A Storm Is Brewing.”

“Storms form when moisture, unstable air and updrafts interact,”they said. A similar confluence of factors “is creating a blast ofvolatility for U.S. commercial real estate.”

Pimco said there may be opportunities in a real estate shakeout,allowing some buyers to snap up properties at bargain prices.Additionally, a wave of maturing debt from the last decade’s boomstarts coming due this year, opening a window for investors to fundborrowers who come up short, according to the report.

“For flexible capital, this storm might be a welcome oneindeed,” Murray and Clarke wrote.

Falling prices

Signs of a cooling real estate market have emerged across thecountry since the start of the year. Commercial-property values inbig U.S. cities, which have seen the largest increases during therecent boom, have declined 3% in the past three months, Moody’sInvestors Service and Real Capital Analytics Inc. said in a June 6report. Real estate transactions in New York, the biggest U.S.property market, are forecast to decline by as much as 30% thisyear, brokerage Cushman &Wakefield said in April.

Turmoil in the market for commercial mortgage-backed securitieshas led to higher borrowing costs for landlords, inhibiting futureprice growth, Pimco said. This is especially true for properties insmaller cities that are more reliant on Wall Street banks forfunding.

The tumult in CMBS is due in part to regulations such asDodd-Frank that make it more expensive for banks to holdsecurities, according to the report. For example, Wall Streetdealers were unable to provide liquidity when hedge funds wereforced to sell CMBS holdings amid a global market rout in February,sending prices for the debt plummeting, Pimco said.

The selloff “highlighted an increasingly important headwind” tocommercial real estate from the debt market and had little to dowith property fundamentals, Murray and Clarke said.

Selling properties

Real estate investment trusts also have been hurt by volatilemarkets. The companies’ shares are trading at prices thatundervalue their holdings, which include properties such asshopping malls, office buildings and hotels. That’s leading REITsto become net sellers, according to the Pimco report.

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The future is uncertain for foreign investors, who poured cashinto U.S. commercial real estate as the dollar appreciated andoverseas economies wobbled, according to the report. China hashinted at increased controls on capital outflows, lower oil pricescould curtail investing from the Middle East and Canada, andconcerns about U.S. policies after the presidential election makecontinued investment from other countries “far from guaranteed,”according to the report.

Real estate and other alternative investments are a potentialgrowth area for Pimco, which has traditionally focused onfixed-income securities. The Newport Beach, California-based firm,with $1.5 trillion in assets under management, cut 68 workers andoffered buyouts to others Thursday as the firm seeks “to serve ourclients in this fast-changing asset-management industry landscape,”according to an internal memo from managers obtained by Bloomberg.Pimco manages about $25 billion in alternative assets, such as realestate, debt, hedge fund and private equity strategies.

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