Real estate expert warns of commercial 'bloodbath'

During an interview on "Varney & Co" real estate expert J. Scott Schell predicted a commercial real estate "bloodbath" due to disruptions in the industry from the COVID-19 pandemic.

HOME SALES HIT 16-YEAR HIGH

J. SCOTT SCHEEL: What we're dealing with is a lot of pent-up forces that are all coming into play right now. The Central Business District Office has been devastated by stay-at-home pandemic restrictions. You know, all of the disruptions that we've seen there has caused all of those assets to really be in non-covenant compliance. Same thing with Class A retail that didn't get absorbed in the last cycle. And then certainly all of your hospitality has been devastated throughout this pandemic and over the course of last couple of years that in and of itself is going to cause massive defaults. 

The good news is, is that there's opportunities for these things to turn around for investors. But the bad news is that through the Troubled Asset Deferral Program, which is part of the CARES Act, nobody has reported on these for 18 months. We have 18 months of defaults that are all going to start hitting now. That happened, that program terminated as of January 1, 2022, and they've got 60 days to report it. So by the second quarter of this year, those things are going to start to come out and banks are going to have to deal with that. So that's going to be a huge crisis in and of itself. And then obviously, we know that the banks, when they start to take on defaulted assets, they're not really in a position to make loans. And so, so many of those assets that did stabilize but have now been hurt are going to be hamstrung by their balance sheets because 3 years of historic operating statements won't really be there to support new debt with values plummeting. There's going to be a lot of blood in the streets and a lot of folks who are going to be looking for safe haven. 

GET FOX BUSINESS ON THE GO BY CLICKING HERE

WATCH THE FULL INTERVIEW HERE: