Commercial real estate has a rough road ahead as lending dries up, Wall Street CEO says

  • Commercial real estate faces higher borrowing costs and tighter lending, Howard Lutnick said.
  • The BGC Partners CEO warned those factors may spell trouble for the embattled industry.
  • He told CNBC that US stocks will also be weighed down slightly.  

Commercial real estate faces a painful combination of steeper borrowing costs and stricter lending to the sector, which could prevent the Federal Reserve from raising interest rates further, according to a Wall Street CEO. 

Howard Lutnick, the CEO of Cantor Fitzgerald and BGC Partners, warned that tricky backdrop means the commercial property market faces a ‘tough time,’ and US stocks could fall as well.  

“Every time commercial real estate loans come due, they’re having a tough time rerolling those loans. Tough markets in real estate coming, tough markets rolling your debt in the credit markets. Tighter credit feels like a weight on the equity markets — it’s going to pull us a little lower,” he told CNBC on Wednesday.

Lutnick forecasted that out of $1.5 trillion of commercial real estate loans coming due over the next three years, the borrowers of $500 billion of that figure will have to give up their properties – putting lenders in a tough spot. 

“One third. Because let’s face it, if rates go to 8% or 9% and your rents haven’t gone up like that, the math doesn’t work. Give the keys back to the bank,” Lutnick said. 

“It’s going to change a lot of things and it’s going to keep the Fed’s hands tight. They’re not raising rates,” he added. 

Experts on Wall Street and other market observers have warned of stress brewing in the commercial property market due to higher borrowing costs following the Fed’s aggressive interest rate hikes, and lenders pulling back following the recent banking fiasco. 

Lutnick also warned that regional banks are in ‘big trouble’ and will eventually consolidate, adding that the Fed has to allow bigger banks to buy them.