The real estate market is a “slow-moving train wreck” with experts warning of an impending $700 billion default
The real estate market looks like a “slow-moving train wreck” as a major default looms, experts told Fox Business News.
Howard Lutnick said a $700 billion default is likely with a huge pile of commercial real estate debt outstanding.
“The Fed is going to have to cut interest rates because that is what is creating the problem.”
The US economy may be strongBut the commercial real estate market is still in trouble.
That’s because a significant amount of commercial real estate debt due last year ended up due in 2024, but things aren’t looking any brighter today with continued high interest rates and work-from-home trends keeping office prices low.
Experts have been sounding the alarm for months, and the warnings are becoming more dire.
“This is a slow-moving train wreck,” said market expert and founder of The Bear Trap Report Larry McDonald Tell Fox Business News on Tuesday.
A mountain of commercial real estate debt worth $2.2 trillion is expected to mature by 2027. Bringing a wave of potential distress Owners are refinancing buildings at much higher rates. As the value of many properties declines, especially in the office sector, owners may have to put more equity into the property or return the keys to the lender.
According to MacDonald, trillions of dollars of mortgage debt approaching maturity, along with a $1.9 trillion pile of corporate debt, will force the Fed to cut interest rates this year.
The real source of distress for commercial real estate loans is office space.
In Washington, D.C., about 25% of office space is occupied on a peak day, Don Peebles, CEO of Peebles, said in the same interview, and New York City has about 10 Empire State Buildings of vacant space.
“What happened is it was a one-two punch,” Peebles said. “Covid has changed the way people work […] And then interest rates rose very quickly. So there was no way out. Lower interest rates would save some buildings and some landlords, but not most. “But the Fed is going to have to cut interest rates because that’s what’s creating the problem.”
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