According to Kevin O'Leary, an investor on the television show "Shark Tank," the commercial real estate market is experiencing a significant shakeout, marking the first occurrence of such a situation in over 20 years.
While Kevin O'Leary anticipates a substantial correction in the commercial property market, he also emphasizes that it will not be completely wiped out.
During an interview with Fox Business, Kevin O'Leary highlighted that although there will be significant changes in ownership within the commercial property market, it will not be completely eradicated. He described the scenario as existing managers losing their equity and being replaced by new managers who have access to distressed funds, which are currently being raised in the billions.
Kevin O'Leary, referencing remarks made by his fellow "Shark Tank" star Barbara Corcoran, emphasized that there is a significant amount of capital waiting on the sidelines for the anticipated downturn in the commercial property market. He stated that this expected "bloodbath" will likely be less severe than anticipated due to the substantial amount of money ready to be deployed.
Kevin O'Leary, along with other experts, has cautioned about the mounting pressure in the commercial real estate sector resulting from increased borrowing expenses following interest rate hikes by the Federal Reserve. Furthermore, the decline in demand for office space after the pandemic has also contributed to this stress.
During his interview with Fox Business, Kevin O'Leary expressed his belief that despite attempts to promote the value of office real estate, the dynamics have fundamentally shifted. He highlighted that not only have interest rates risen, but there is also a significant shift in people's preferences, as they are no longer inclined to work in traditional cubicle-based office environments.
In addition, Kevin O'Leary drew attention to the potential consequences for regional banks, which have a substantial portion of their portfolios invested in commercial real estate. Based on his estimates, he suggested that this market is now facing significant challenges, indicating that it may be underwater in terms of its financial viability.
Kevin O'Leary had previously predicted that the collapse of Silicon Valley Bank in early March would mark the starting point of a downward trajectory for regional banks.
During his conversation with Fox, Kevin O'Leary forecasted that within the next five years, approximately 4,500 smaller, less viable banks would undergo consolidation, resulting in the emergence of around 800 well-capitalized "super-regional" banks.
Kevin O'Leary added that while the consolidation process may be painful, it will not lead to the complete shutdown of the American economy. He emphasized the need to accept and adapt to the changes taking place in the commercial real estate and banking sectors.
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