Howard Lutnick: Real Estate Market Will Be ‘Very Ugly’ This Year and Next — How Can You Prepare?
Cantor Fitzgerald CEO Howard Lutnick sounded the alarm about the commercial real estate market, which he said will be “very ugly” this year and next.
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Speaking to Fox Business host Maria Bartiromo at the World Economic Forum in Davos, Switzerland, Lutnick predicted a “generational” shift that would result in a massive default in loan sales.
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“I think $700 billion could default … The lenders are going to have to do things with them. They’re going to be selling. It’s going to be a generational change in real estate coming, end of 2024 and all of 2025. We will be talking about real estate being just a massive change,” Lutnick told Bartiromo. “I think it’s going to be a very, very ugly market in owning real estate over the next, you know, 18 months, two years,” he said.
As The Wall Street Journal reported, the commercial real estate market is bracing for a record amount of maturing loans, increasing the chances of massive defaults as property owners are forced to refinance at higher rates.
Higher rates, higher vacancies and weaker cash flows are depressing property values, according to The Wall Street Journal.
Yet, some experts argued that while commercial real estate defaults are going to rise, and in a few markets multifamily defaults will rise, too, outside of the office and mall sectors, demand for commercial real estate remains strong.
“Furthermore, mortgage rates have been falling even without Fed rate cuts because inflation has been falling,” said Jason Sorens, senior research faculty, American Institute for Economic Research. “There’s a good chance that it will continue easing some of the pain of refinancing. If we tip into recession in 2024 and consumer demand drops a lot, however, dire scenarios start to look plausible.”
For investors in real estate investment trusts, this could have serious implications.
As Credit Benchmark reported, rising rent arrears and defaults could affect one sector in particular — the office sector, which is worst affected by the persistence of hybrid working.
In a blog post on the J.P.Morgan Private Bank website, global investment strategist Ian Schaeffer wrote that while the bank is “generally steering clear of the troubled office sector, we find interesting prospects, and at attractive valuations, across the residential, hospitality, industrial and residential (multifamily, senior housing, student housing) sectors.”
“Depending on your family’s goals and investment choices, the CRE market may offer the potential for income, capital appreciation, inflation protection and portfolio diversification,” Schaeffer wrote.
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