Real estate expert warns of commercial 'bloodbath'

[Tyler Bell]

https://www.foxbusiness.com/re...

This is a headline I just read on FOX business. J. Scott Schell is claiming this commercial real estate crisis will be worse than 2008. What are your thoughts on his analysis? 

[J Scott]

Quote from @Taylor L.:

I'm not convinced this guy isn't trying to ride on the real @J Scott's name/brand/coattails!

:)

First, keep in mind that "commercial real estate" is an over-loaded term. 

Does that refer to Office Space?  Warehouse?  Retail?  Flex?  Multifamily?  Industrial?  Something else?

I don't think it's unlikely that one or a couple of those asset classes will see a downturn over the next couple years -- among all those asset classes, we have typical cycles that drive values up and down, and while all those asset classes are correlated, they are not perfectly correlated. 

For example, as @Russell Brazil said above, Office Space got hit pretty hard last year.  But, Warehouse, Industrial and Multifamily all had a record year.

Could one or two of these asset classes have a major downturn (worse than 2008)?  I guess, but likely not simply based on fundamentals.  Fundamentals in most of these asset classes are strong, and I believe it would take a major macro-economic event (or geo-political event leading to a macro-economic event) to cause a 2008-like crash.

I see the greatest risk in retail.  While large businesses are creating record profits (see the vast majority of publicly listed companies if this isn't obvious), the vast majority of small/mom-and-pop businesses are struggling.  Covid decimated margins in the service industry, and I wouldn't be surprised if a lot of non-anchor retail office space starts hitting the market soon, with lack of demand driving values down.

Will they crash like 2008 prices?  Could be.  Though I don't think it would look anything like 2008, as retail space isn't well-correlated to broader asset classes, so a crash in retail real estate is unlikely to reverberate throughout the industry -- let alone the financial markets.

As for the other commercial asset classes, most of them seem pretty strong.  Warehouse/Flex is still in huge demand.  Office space has started to recover.  Industrial has strong fundamentals (but I'd put this as second most risky behind retail).  And multifamily will likely stay strong for a long while.

Again, I'm not ruling out a major global event that could derail things, but that doesn't seem to be what this guy is predicting.  He seems to believe that fundamentals are problematic, and I mostly disagree.