Warren Buffett's business partner warns of a credit crunch in commercial real estate - and says it's a tough time to be an investor
The CRE industry is widely viewed as especially vulnerable to a credit crunch. Real estate investors rely heavily on debt, which has grown more costly thanks to rising interest rates. Moreover, property prices are under pressure from the remote-working trend, and higher yields from bonds and savings accounts reducing the appeal of riskier assets.
Munger bemoaned that investing overall is tougher today than a few years ago. The Federal Reserve has raised interest rates from virtually zero to about 5% over the past year or so in a bid to curb historic inflation. However, its hikes areby increasing borrowing costs. They also threaten to pull down asset prices, erode corporate profits, and drag the economy into a recession.
At the same time, the rollout of zero-commission trading apps and a sharp rise in the number of cash-rich institutional investors has made it harder to score outsized returns than in the past. "At the exact time that the game is getting tougher we've got more and more people trying to play it," Munger said."There's too much private equity, too many buyers of all kinds … it's making it a very tough game for everybody."
Munger complained there's an excessive number of money managers in the US. He blasted them as little better than"fortune tellers or astrologers," and accused them of taking cash from clients while providing nothing of value to them.that it's a"tougher world out there for a great many businesses.
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