Brace for a real-estate recession as commercial property will be the next domino to fall in the US, says top Guggenheim and Apollo execs

• A real-estate recession is coming as commercial property will be the next domino to fall, according to top execs.
• "That's the next shoe to drop in the US. Like everything else, it has been priced so tightly," Apollo's co-president told the FT.
• Tighter credit conditions and remote-work trends are among factors disrupting the commercial property industry.

Brace for a real-estate recession as commercial property will be the next domino to fall in the US economy, according to top executives at Guggenheim Partners and Apollo Global Management.

"We're likely going into a real-estate recession, but not across the entire real estate market," Guggenheim Partners chief investment officer Anne Walsh told the Financial Times. "Lenders will be very choosy about what loans they are willing to make," she added.

Pressure has been building on the commercial real estate (CRE) industry this year as it faces a slew of headwinds including high interest rates, tighter lending standards, and work-from-home trends. On top of that, there's a wall of CRE debt - initially financed at low interest rates - that's facing impending rollover.

According to data cited from Trepp by JPMorgan, nearly $450 billion in commercial real-estate debt is due to mature in 2023 - meaning a final payment on those loans are due. Against that backdrop, US regional banks have become an area of concern given their large exposure to commercial real-estate sector.

Meanwhile, Scott Kleinman, co-president at private equity firm Apollo Global told the Financial Times that the private equity market hasn't started to mark down the valuations of their real-estate holdings to reflect stress in the sector.

"The private market hasn't started to heavily mark down real estate," Kleinman told the Financial Times. "The equity will be first. That's the next shoe to drop in the US. Like everything else, it has been priced so tightly and there hasn't been a commercial real-estate crisis in the US since the '90s," he added.

A chorus of market experts have been sounding the alarm on commercial real estate since the failure of Silicon Valley Bank. Even the Federal Reserve's own economists have warned that "the magnitude of a correction in property values could be sizable and therefore could lead to credit losses by holders of CRE debt."