‘It’s Getting Worse By the Week’: Kevin O’Leary Issues Grave Warning About Commercial Real Estate Industry
“Shark Tank” star Kevin O’Leary has often warned about impending economic crises, and his latest is sounding the alarms for the commercial real estate industry.
In an appearance on FOX Business’ “Varney & Co,” O’Leary voiced his concerns — that stocks are beginning to plummet in the industry — and claims the business has become “uneconomic” due to inflation and raising debt ceilings.
“It’s getting worse by the week, and lots of private equity firms are admitting there’s cracks in the system,” he said bluntly. “It’s based on debt … The debt was raised for these buildings back at 3, 4 and 5%, now they’re dealing with 9 to 14% and refinancing them.”
Since the pandemic, remote work has left many companies in debt with their office spaces, and these big buildings that are more vacant than ever before.
According to data by Statista, over 16% of office spaces around the country were vacant in Q1 of 2023, with percentages climbing as high as 30% in major U.S. markets like San Francisco and New York City.
Companies looking to sell their office spaces are also having difficulty.
O’Leary also pointed out that property values on these commercial buildings have tanked, coupled with the fact that the U.S. will be facing roughly $1.5 trillion in commercial mortgage debt by the end of 2025.
“Unfortunately, what we have is many of [commercial mortgages] are on the balance sheets of regional banks, up to 40% of their balance sheets. These are going to come through, rolling through refinancings over the next 18 to 30 months,” O’Leary said. “We’re going to see more cracks on regional banks, and that’s putting pressure on the loan books of those banks which are hitting small business.”
The domino effect could be devastating for any business in need of a loan, he added.
Still, in June, O’Leary notably said he’s a fan of remote work and thinks mandating a return to the office is outdated. He slammed Martha Stewart’s comments about the need to return to the office, saying that “nobody wants to work in these places” and noting that 40% of former in-office workers will not return to offices in the post-pandemic world.
This isn’t the first time O’Leary has warned of potential troubles ahead for small businesses.
Last month, the “Shark Tank” star went on FOX’s “The Big Money Show” to talk about the Federal Reserve interest rate hikes and how it’s affecting the financing of small businesses.
“These rapid rate hikes that have occurred, [the] unprecedented speed of these hikes, have put my small businesses [in crisis],” O’Leary said at the time. “If you’re in the S&P 500, you have no trouble financing your business. You can’t say that about small businesses anymore. The cost of capital has gone through the roof.”