Billionaire Jeff Greene says the real estate industry is entering a new chapter that will test large portions of the American economy.
In a new interview with Fox Business, the real estate entrepreneur says after years of artificially low interest rates, the shift towards more expensive capital could rock inexperienced investors not ready for rate hikes.
“I can tell you that most people in the market today have not been around that long. And you know since we had the dotcom bust in 2002, we’ve had artificially depressed interest rates. So people have never had this experience of rates going up. And I can tell you, I see people all the time who are panicked because they’re thinking, how am I going to pay off my construction loan when the apartment building I’m building is done, when rates have now gone up way beyond what I can afford and rents are dropping?
And so I think you’re going to have not just office buildings, people aren’t going to be able to afford to pay off their home loans that are due or their apartment building loans.
We are heading into a very frightening time in the entire real estate industry.”
Greene, a registered Democrat, also warns that artificial intelligence could be a “sledgehammer” to white collar jobs, lessening the need for many office workers and physical spaces that so much of the market leans on.
Economist Peter St Onge issued a similar warning earlier this year, saying a collapse in commercial real estate could be a canary in the coal mine for the US financial system at large.
The analyst warned that the true scope of the problem hasn’t fully manifested yet. According to St Onge, bleeding government bonds, combined with rising interest rates and massive amounts of bad loans sitting in regional banks could be a perfect storm that triggers major economic fallout.
“It amounts to a perfect storm for commercial real estate that, if anything, is getting worse. I’ve mentioned that these storms haven’t even begun to hit the banks. So far it’s mainly been melting government bonds taking up banks one by one – as in they’ve got assets paying 2% or 2.5% while their debt is costing closer to 5%.
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