Bob Fraser explains why commercial real estate is headed for a crash. Bridge loans with three-year rate caps are expiring in the next 12 to 18 months, forcing owners to refinance at higher rates their properties can't support. When they can't refinance, fire sales follow and many owners face negative equity.
right now cap rates are below interest rates and that just can't, so it means leverage doesn't even make sense anymore. And if you can't leverage, well you're not buying anything. So it's kind of nuts and we are going to see things happen. We're personally looking out, you know, we saw this in this bubble that we've seen in the last couple years. It's completely bridge debt driven. And I think we're going to see what I call a bridge blowup. And I think when interest rates reset, when they, you know, these, they typically bought with 3-year caps kind of thing. When those caps are lifted, which is coming up in the next 18 months, say 12 to 18 months, you're obviously going to see refinance risk where these guys can't refinance and then they don't cash flow at the new rates. And if you can't cash flow, guess what? You can't refi. If you can't refi, you have to fire sale. And if cap rates have risen at all, it's actually a negative equity event. You lose, you lose money.
