Kyle Bass says the U.S. banking industry will lose hundreds of billions of dollars from its exposure to the office market due to changing workplace trends and rising interest rates.
“Bank of America will lose $200 to $250 billion over time,” Bass, founder of Hyman Capital Management, told Bloomberg TV on Monday. “Bank equity is about $2 trillion, so Bank of America Industry equity took a 10% hit.”
Bass said office space is the main segment of the commercial real estate market that will see losses, while industrial and multifamily will remain strong. Bass is best known for his successful bets on subprime mortgages before the 2008 financial crisis.
Bass predicts that the U.S. will need to demolish older, lower-quality office buildings to reset the market. He is not alone in this view. Canadian investor Vincent Chia purchased the land only to demolish it and profit from the land.
Rising interest rates and tighter lending conditions have made things more difficult for property developers. While Bass doesn’t expect the Fed to raise interest rates significantly, he expects wages to remain strong.
“Our wages are going to struggle and we’re going to see a downturn in the economy over the next six to eight months,” he said.