Warren Buffett -- "A Storm is Brewing" in the Real Estate Market

Is a $1.4 Trillion Real Estate Tsunami about to hit the market?

Are US Banks filled with bad commercial loans?

As Buffet’s former right hand man says: “The Buildings don’t go away, the Owners do.”

Big Fish will always be waiting for the opportunity to eat the little fish, who think they are big.

*Note: this is talking about Commercial Real Estate Loans.

Commercial Loans are usually Adjustable and are reset every 3 to 5 years. When these loans are reset with 5% higher interest it will put many commercial investors in the hole.

Real Estate Loans are usually Fixed and can be for 10, 15 or 30 years and always have option of refinancing at lower rates – when the Fed lowers rates.

Property Taxes have gone through the roof because people have borrowed cheap money and paid way more than they were worth.

It is about consequence time.

Borrowing at 2.5% doesn’t work at 6.5%.

Large Commercial Business Properties – office buildings, apartment complexes, and warehouses are often purchased with Non-Recourse Debt.

A non-recourse loan is a debt or loan that is secured by collateral, usually property, but the borrower is not personally liable. If the borrower defaults, the lender can seize and sell the collateral, but they cannot pursue the borrower for any additional compensation, even if the collateral doesn't cover the full amount owed. This means that if the collateral sells for less than the loan, the lender can't pursue the borrower for the difference.

There is an estimate $1.4 Trillion of these loans that will be due in the next 12 to 24 months – through the year 2025.

There are huge commercial real estate investment firms all around the US taking out massive loans like these, many over $200 million just for an office building to rent to businesses. When the occupancy rate goes down and the interest rates go up, this is a recipe for disaster.

It is truly a storm in the making.

Many of these investment firms will just hand the banks the keys and the banks making these commercial loans will be holding the bag and some may be able to hold the bag until the value of the property increases so they can unload it, but others simply won’t be able to hold them that long.

The Top Six Banks: JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley have combined Assets of $14 Trillion.

Guess What? These Banks are not the ones that will be holding the bag of debt as they are not the top Commercial Lenders.

It is the smaller ones who were encouraged and set up to make these foolish loans and they will be wounded bait for the larger banks mentioned above.

The small, regional banks make over 2/3 of all commercial loans.

Looks like many will no choice to but to join the larger banks and this is the plan.

When banks struggle, they become illiquid and businesses that need liquidity will have to find it elsewhere or else suffer some dire consequences.

This all is recipe to significantly SLOW the economy down as there will be less hiring and business growth will stall out.

Charlie Munger: “There will be a lot of pain. The question is, who will bear it.”

My other Buffet Videos Predicting Stock Market Crash and Banking Crash in the near time Future.
1. ***Warren Buffet – “A Storm is Brewing in the Stock Market” – Is a 40% Crash on the Horizon? -- https://rumble.com/v55ixpz-warren-buffet-a-storm-is-brewing-in-the-stock-market-is-a-40-crash-on-the-h.html

2. Warren Buffett – A "Storm is Brewing" in the Banking Industry
https://rumble.com/v55sgce-warren-buffett-a-storm-is-brewing-in-the-banking-industry.html

Source: Investor Center -- https://www.youtube.com/watch?v=Jq_6RKHJIIA

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END. 7/9/2024 – 3:00 PM
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