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JP Morgan Chase (New York Stock Exchange: JPM) CEO Jamie Dimon believes commercial real estate’s problems will only get worse in a recession and that many property owners can handle the current level of stress.
“If we don’t have a recession, I think most people will be able to get by, refinance, invest more capital,” he told CNBC in a interview.
Dimon noted that not all commercial real estate subsectors are at risk, such as warehouses and data centers. “But if we just take offices, they’re worth less because of interest rates. When rates go up 300 basis points, anything you own with cash flow is worth 30% less. This isn’t a crisis. It’s a thing Note .”
As for the rise in defaults, Dimon said “part of this is just a normalization process.” But “if rates go up and a recession occurs, there will be real estate problems, and some banks will have a much bigger real estate problem than others.”
Asked about a soft landing for the economy, Dimon said markets are pricing in a 70% to 80% chance of that happening. “I give half that. We could very well have one, but there’s also a higher chance than the market thinks that rates will be a little higher.”
The commercial real estate sector has been a cause for concern, amid fears that property owners may not be able to meet debt payments, with $929 billion in commercial mortgages coming due this year.
Concerns increased after New York Community Bancorp disclosed a massive provision for credit losses, given its excessive exposure to commercial real estate loans.