Billionaire Barry Sternlicht supplied an ominous prediction about America’s regional banks amid a coming business actual property reckoning.
The Starwood Capital Group CEO advised CNBC on Tuesday that he thinks actual property’s main lenders — regional and neighborhood banks — may quickly be bearing the brunt of excessive rates of interest and inflation.
“You are going to see a regional financial institution fail daily, or not — each week, possibly two per week,” Sternlicht mentioned.
There are greater than 4,000 regional and neighborhood banks all through the US, a lot of which can not have the money move to deal with main mortgage losses on actual property debt.
Issues have been pummeling the whole lot of the actual property sector, however business actual property, specifically, has been struggling because of the rise of distant and hybrid work, resulting in an increasing number of vacancies.
Sternlicht has been ringing the warning bells for greater than two years, calling the state of affairs an “existential disaster” in a January Bloomberg interview. Earlier this yr, he predicted $1 trillion of losses on workplace properties alone. Within the Tuesday interview, Sternlicht mentioned Fed Chair Jerome Powell’s ongoing fee hikes will proceed to have penalties in the actual property sector for the foreseeable future.
“He is acquired a tough process with a blunt software, and the consequence is the actual property markets are taking it on the chin as a result of charges rose so quick. We may have dealt with this, however we could not deal with it this quick,” Sternlicht mentioned. “The 1.9 trillion of actual property loans, that is a fragile animal proper now.”
Just one regional financial institution has shuttered for the reason that begin of 2024. Final month, the Federal Deposit Insurance coverage Company seized $4 billion in deposits and $6 billion in belongings from Republic First Financial institution, a regional lender working within the Northeast with important business actual property holdings.
Others have echoed Sternlicht’s warnings. Scott Rechler, RXR CEO, made an identical prediction earlier this yr, saying he thinks there can be 500 fewer banks within the US by 2026 as many business actual property loans begin to mature.
“Neighborhood banks are essential to our material,” Sternlicht advised CNBC on Tuesday.
