Wilbur Ross is of the opinion that commercial real estate faces a crisis in the coming months that will cause significant problems in the sector.
“The same reckless lending that characterized the subprime mortgage business in residential was also characterizing what had gone on in [CRE] in the mid 2000,” Ross said. ” You had properties being bought at a 3% cash-n-cash yield, you had properties being financed on such an aggressive basis that the lenders had to give them in advance several years worth of interest cause there wasn’t enough cash coming from the properties even to pay the interest. And the theory was that rent rolls would go up, occupancy would go up, and eventually the property would grow its way into paying interest. Well, now that clock is ticking, the rents haven’t gone up, they’ve gone down, occupancy ’s…. gone down and capitalization rates that people require from properties have gone up,” he added.
“Everything’s going in the wrong direction and I think we’re going to see quite a lot of tragedies in that sector,” Ross said.
Ross predicted that the government won’t take nearly as active a role in supporting the CRE as it did with bailouts during the subprime mess.
“I don’t think the federal government is going to do much to help the commercial building side, because individual home owners vote, but buildings don’t vote,” he said.
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i want to say, that
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