The bank crisis is only part over, and part two will be fueled by real estate, Apollo’s Marc Rowan said. Rowan said bank failures will further tighten credit conditions. Small- to mid-sized lenders finance most commercial real estate debt, spelling trouble for the sector. Loading Something is loading.
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The banking crisis is only partly over, and the next wave could soon come from the commercial real estate market, according to Apollo co-founder Marc Rowan.
In an interview with Bloomberg on Monday, the billionaire private equity executive noted to the failure and rescue of First Republic Bank, the latest lender to collapse after the fall of Silicon Valley Bank last month sparked a wave of chaos in the banking sector.
But the tumult isn’t over, Rowan warned, as banks are expected to pull back on lending, leading to a crunch in credit conditions. While that’s unlikely to lead to a systemic financial crisis, in Rowan’s view, it could spell trouble in “concentrated” areas of the market – particularly the commercial real estate market, where small- to mid-sized regional lenders finance 80% of all the industry’s debt.
“I think part one of the banking crisis is over,” Rowan said. “The interesting thing to me is not whether these banks failed, it’s what’s the business of regional banking going forward? … Can you lend money, or is your business model going to need to change, going to need to evolve? I think that’s what’s interesting, and I think we’re going to have a second wave in commercial real estate,” he added.
Other commentators have warned of a coming crash in commercial real estate, given the pullback in credit conditions and the $1.5 trillion in commercial mortgages set to mature by 2025, at which point they will likely have to be refinanced at higher rates and tighter terms.
That could lead to a 2008-sized crash in the commercial real estate sector, one exec said last month, and Morgan Stanley has predicted a 40% drop in commercial property prices from their peak.
Meanwhile, big players in the industry are already struggling against higher rates and tougher conditions. Blackstone, the largest owner of commercial real estate in the world, saw profits from the sale of assets drop sharply in the last year, while Brookfield Corporation, another giant commercial real estate owner, defaulted on mortgages backed by a handful of high-profile properties this year.