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Investing in CRE? Devastation could be ahead warns lender

by Steve Randall on 23 Mar 2020

The chief executive of a major US nonbank commercial lender of a non-bank commercial lender in the US has made a stark prediction about the industry as the COVID-19 coronavirus rips holes in the economy.

Tom Barrack, chairman and chief executive of Colony Capital Inc., wrote a white paper Sunday that warned that the US commercial mortgage market is on the brink of collapse.

He sees a devasting domino effect if policymakers don’t take appropriate action to avoid defaults.

“Loan repayment demands are likely to escalate on a systemic level, triggering a domino effect of borrower defaults that will swiftly and severely impact the broad range of stakeholders in the entire real estate market, including property and home owners, landlords, developers, hotel operators and their respective tenants and employees,” he wrote.

He is calling for policymakers to shore up liquidity for real estate investment trusts, credit funds, and lenders; and to allow banks to provide loan forbearance without triggering bank-capital rule violations.

Without action for the real estate industry – and its lenders - Barrack says there will be far-reaching consequences for the US economy.

“Across the entire real estate ecosystem including construction, retail, healthcare, leisure and hospitality, and real estate services there are almost 63 million jobs at stake. This real estate ecosystem represents ~$7.1 trillion of GDP, out of $20.3 trillion total US GDP,” he wrote.

His white paper is available here:

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