US fund managers are warning that commercial real estate could be “the next shoe to drop”.
Growing problems in the $5.6tn US commercial real estate industry, they say, could prove painful for lenders already shaken by turmoil in the banking sector.
“The private market hasn’t started to heavily mark down real estate,” said Apollo Global Management co-president Scott Kleinman. “The equity will be first. That’s the next shoe to drop in the US. Like everything else, it has been priced so tightly and there hasn’t been a commercial real estate crisis in the US since the ‘90s.”
Guggenheim Partners chief investment officer Anne Walsh said the pain would be concentrated in large urban centres such as San Francisco and New York, as well as in second-class office buildings that are in need of repair.
“We are likely going into a real estate recession, but not across the entire real estate market,” Walsh said.
