Kevin O’Leary (from Shark Tank) Says a Coming Real Estate Collapse Will Lead to ‘Chaos’!
The Shift Away From In-Person Work Will Lead To More Bank Failures.
Kevin O’Leary believes that the commercial real estate sector is on the brink of collapse and will bring with it ripple effects that will be detrimental to investors and small business owners.
“Many of these office spaces are in sub-grade markets, but even in cities like Boston, you find lots of vacancies — up to 40% of buildings,” O’Leary said. “The challenge is, in every other real estate cycle when you have a correction — which is about to happen here because of rising rates — we’ve got to refinance these buildings. Many of them have no equity left in them.”This will cause serious issues for the regional banks that are invested in these buildings.“These banks are going to fail because up to 40% of their portfolio is in commercial real estate,” O’Leary said.
O’Leary said we are in a “unique” situation right now because the commercial real estate market is not expected to ever bounce back to where it was pre-pandemic.
“What’s unique, that’s just coming onto the radar screen, is that most of these buildings cannot be used again as office space because the economy has changed,” he said. “No one saw this coming. But up to 40% of people that work in small businesses don’t return to offices anymore. So we have to repurpose these buildings.”
O’Leary notes that these properties could theoretically be converted into storage spaces or even housing, but this is easier said than done.“You can’t do that without zoning changes and policy changes,” he said. “It’s very difficult. So it may be better long term to actually tear these buildings down and rebuild them for a new purpose — data centers, industrial climate-controlled storage.
As regional banks feel the effects of the commercial real estate collapse, this will be carried over to small business owners who normally seek loans from these banks.“The spin-off, which is causing chaos right now, is those loan books at those regional banks,” O’Leary said. “Regional banks have to close loans to small businesses because they have capital call requirements put on them because of the pressure of this commercial real estate, so they’re not making loans. […] So we’ve got the pressure at the regional banks, commercial real estate collapse and small business not getting any capital. - Small businesses employ over 40% of the workforce. This is all bad news.”
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