Warren Buffett: It's Time for CRE Borrowers to Feel the Pain

The legendary investor from Omaha who gets a burger for lunch every day at the local five-and-dime (in what might be the last town in America where they still have a five-and-dime) has a message for commercial real estate owners who are getting squeezed by rising interest rates and CMBS loans coming due:

It’s time for you to feel the pain.

“They should lose money. If people borrowed on commercial real estate and now the loans aren’t getting extended, too bad. That’s part of borrowing on 100% margin, which is what people were doing,” Warren Buffett said at Berkshire Hathaway’s annual meeting on Saturday, the Dallas Business Journal reported.

“You’ve got to have the penalties hit the people who caused the problems, if you’re going to change how people are going to behave in the future,” said Buffet, famous for sitting on blue-chip stocks for decades and never speculating on bubbles.

With a tidal wave of more than $1.5T in CMBS coming due in the next three years, numerous office building owners are expected to turn the keys over to lenders as office valuations plunge in major urban centers.

“The hollowing out of the downtowns in the United States and elsewhere in the world is going to be quite significant and quite unpleasant,” Berkshire Vice Chairman Charlie Munger told the shareholders at the meeting.

“I think the country will get through it alright, but as they say, it will often involve a different set of owners,” Munger said, according to DBJ’s report.

Buffett’s real estate arm, Berkshire Hathaway HomeServices, has grown into a national network of home brokerage franchises through a series of acquisitions after it bought real estate brokerage firms from Prudential and Real Living in 2012 and rebranded Prudential Real Estate to Berkshire Hathaway HomeServices.

In August 2013, the company acquired Prudential Fox & Roach, Realtors®/Trident Group; in November 2013, it bought Prudential Rubloff Properties, operating in the Chicago area; In May 2014, the company acquired Intero Real Estate Services, operating in Silicon Valley.

In July 2015, the Berkshire Hathaway acquired Prudential Centennial Realty, operating in Westchester County NY and First Weber, the largest residential brokerage in Wisconsin.

In 2017, the company acquired Houlihan Lawrence, the largest residential brokerage in Westchester County, and Gloria Nilson & Co. Real Estate, a residential brokerage in NJ.

In 2018, the company bought North Texas real estate firm Ebby Halliday; last year, Berkshire acquired Sioux Falls, SD-based Hegg Realtors.

The company also formed a strategic alliance with Juwai.com, China’s largest overseas property portal offering access to high net-worth individual Chinese buyers looking to purchase homes.

Aiming for buyers ranging from first-time home buyers to high-end residential markets, Berkshire Hathaway HomeServices trades on reliability, common sense and other attributes you would associate with the oracle of Omaha.

“Our franchisees are down to earth, nimble and local experts,” Berkshire Hathaway’s website says. Do they know where to get a good burger?

A pullquote from Buffett reads: “When people are making the decision of the magnitude of buying a house, it’s the biggest decision a great many families will ever make. They want to know who they’re working with and we think that the Berkshire Hathaway name will be reassuring to many of those people.”