“Shark Tank” star 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. He expanded on this “unique situation” while appearing on a recent episode of “Kudlow.”
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Here’s everything you need to know about the state of commercial real estate and how it can have broader economic impacts.
The Shift Away From In-Person Work Will Lead To More Bank Failures
Although many large-scale companies are shifting back to in-office work, many small businesses are not making this return. This means that many office buildings are remaining vacant.
“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.
