Last week, several commercial real estate experts shared their concerns about where the industry is headed. Even Tesla and SpaceX chief Elon Musk tweeted that commercial real estate is melting fast. The tweet was in response to Craft Ventures founder David Sacks' tweet about maturing CRE loans. Increasing office vacancies in all major U.S. cities and a record $2.5T in commercial real estate debt expected to mature in the next five years have worried industry experts. In an interview with Bloomberg TV, Ross Perot Jr. warned of a looming real estate recession if banks don't start lending again. He said banking is the key to commercial real estate at the moment. He pointed to the strict financial restrictions developers face to get construction loans, even for industrial buildings. Perot is Hillwood's chairman, helping developers find financing for their projects. He shared a positive outlook on Texas' commercial and residential real estate markets because of rapid population growth and corporate relocations. Barbara Corcoran, well-known for real estate brokerage The Corcoran Group and her appearances on the TV show "Shark Tank," seconded Musk's comment and said the market would get much worse before it gets better. She shared her views on Fox Business' "The Claman Countdown." Corcoran highlighted the record office vacancies and said people are staying home. She predicted more businesses would default on their loans or mortgages. In a recent report, JPMorgan analyzed commercial real estate debt exposure across several institutions. The report estimated a total CRE office and retail exposure to be around $1T and $600B, respectively. It forecasts CRE office loans to translate to a cumulative loss of $82B across all institutions.
AQR Capital Management's founder, Cliff Asness, said during a recent episode of "Bloomberg Wealth with David Rubenstein," "Commerical real estate, and banks that deal in that, may be a more nerve-wracking place — how that shakes out in cities. I'm worried enough to put it on my worry list." In an interview with Fortune, Corion Enterprises CEO Fred Cordova said warnings from Goldman Sachs and Morgan Stanley came too late, and office prices are already tanking. He said what is happening in the office sector is apocalyptical; a building bought for $230M would probably sell for $100M now. Cordova compared the current situation to a plane coming down in a Denzel Washington movie, "Flight." Another "Shark Tank" star, Kevin O'Leary, believes the commercial real estate market is facing a significant correction for the first time in two decades. However, he is optimistic that it wouldn't be wiped out entirely. He indicated the potential impact on regional banks and predicted 4,500 small banks would consolidate into 800 well-financed regional banks in the next five years. |
