New Money: Big Short Investor’s Warning for the Commercial Real Estate Crisis
Some have warned about the dangers in commercial real estate for years. Starting with the pandemic and the rise of work-from-home policies, office space occupancy has dropped.
Meanwhile, commercial real estate tends to be refinanced every few years, unlike a fixed-rate home mortgage. With interest rates at their highest levels in 15 years, it’s possible that there could be trouble ahead for some office spaces in some markets.
Steve Eisman, a fund manager who profited from the implosion of the U.S. housing market in 2008, sees big danger for office real estate today.
The potential crisis will likely roll out over a period of years. That’s because each company invested in office properties has their debt due to roll over at different times.
And the trend is unlikely to change. Some cities, such as tech hub San Francisco, has seen demand for office space drop by two-thirds from its pre-pandemic level. Unless office buildings are converted into other property types, there could be some long-lasting scars.
A few office property sales have borne this out so far. One recent deal went for about $200 per square foot, down from $1,000 per square foot. That’s an 80 percent decline. And it’s steeper than the drop housing suffered in 2008.
While the office market is smaller than the housing market, a rolling crisis over the next few years could weigh on economic growth. But it will also provide a much better buying opportunity.