JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon believes commercial real estate issues will only worsen if there is a recession, and a lot of property owners can handle the current level of stress.
“If we don’t have a recession, I think most people will be able to muddle through this, refinance, put more equity in,” he told CNBC in an interview.
Dimon noted that not all sub-sectors in commercial real estate are at risk, such as warehouses and data centers. “But if you take just offices, they’re worth less because of interest rates. When rates go up 300 basis points, whatever you own with the cash flow is worth 30% less. That’s not a crisis. That’s kind of a known thing.”
As for mounting defaults, Dimon said “part of that’s just a normalization process.” But “if rates go up and we have a recession, there will be real estate problems, and some banks will have a much bigger real estate problem than others.”
When asked about a soft landing for the economy, Dimon said markets are pricing in 70%-80% odds of that happening. “I give it half that. We may very well have one, but there’s also a higher chance than the market thinks of rates being a little bit higher.”
Commercial real estate has been an area of concern, amid fears that property owners may not be able to service debt payments, with $929B of outstanding commercial mortgages due this year.
Concerns escalated after New York Community Bancorp disclosed a massive provision for credit losses, given its outsized commercial real estate loan exposure.
Source: “JPMorgan’s Jamie Dimon isn’t too worried about commercial real estate“
