Jamie Dimon warns of a commercial real estate downturn

CNN – Economists are concerned about the $20 trillion commercial real estate (CRE) industry and so is JPMorgan Chase CEO Jamie Dimon.

The regional banking crisis is having a knock-on effect on commercial real estate lending, Dimon warned at his company’s shareholder meeting on Monday.

What’s happening: “There’s always an off-sides,” Dimon said, using Wall Street jargon for an indirect consequence. “The off-sides in this case will probably be real estate. It’ll be certain locations, certain office properties, certain construction loans. It could be very isolated; it won’t be every bank.”

Office and retail property valuations have been falling since the pandemic brought about lower occupancy rates and changes in where people work and how they shop. The Fed’s efforts to fight inflation by raising interest rates have also hurt the credit-dependent industry.

Recent banking stress has significantly added to those woes. Lending to commercial real estate developers and managers largely comes from small and mid-sized banks, where the pressure on liquidity has been most severe. About 80% of all bank loans for commercial properties come from regional banks, according to Goldman Sachs economists.

“You’re already seeing credit tighten up because the easiest way for a bank to retain capital is not to make the next loan,” said Dimon.

Regulatory changes made in response to the collapse of Silicon Valley Bank and Signature Bank will also likely lead small banks to tighten access to their credit, he said.

As capital tightens up, added Dimon, interest rates could go even higher. “I think everyone should be prepared for rates going higher from here,” he said.

Nearly 85% of investors are pricing in a pause in interest rate hikes at the next Federal Reserve meeting, according to the CME FedWatch Tool.

What else: A US debt limit crisis is looming, regional banks are still contending with their own turmoil and recession predictions abound. But Dimon, arguably the most powerful executive in the United States, seemed fairly relaxed about it all on Monday.

Dimon, who heads the largest bank in the country, appeared upbeat in an open-collar shirt as he answered questions from investors. He walked on stage to the theme from Rocky.

Dimon, 67, also spoke candidly about his succession plans. While there are plenty of qualified and competent internal candidates for his spot, he said, he doesn’t plan to step down anytime soon.

“I still love what I do,” he told investors Monday. “I can’t do this forever, I know that. My intensity is the same. I think when I don’t have that intensity, I should leave.”