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- Billionaire Barry Sternlicht is worried about America's regional and community banks.
- Sternlicht told CNBC that banks may bear the consequences of the real estate crisis.
- Only one bank has closed so far this year, but Sternlicht said more could be coming.
Billionaire Barry Sternlicht offered an ominous prediction about America's regional banks amid a coming commercial real estate reckoning.
The Starwood Capital Group CEO told CNBC on Tuesday that he thinks real estate's primary lenders — regional and community banks — could soon be bearing the brunt of high interest rates and inflation.
"You're going to see a regional bank fail every day, or not — every week, maybe two a week," Sternlicht said.
There are more than 4,000 regional and community banks throughout the US, many of which may not have the cash flow to handle major loan losses on real estate debt.
Problems have been pummeling the entirety of the real estate sector, but commercial real estate, in particular, has been struggling due to the rise of remote and hybrid work, leading to more and more vacancies.
Sternlicht has been ringing the warning bells for more than two years, calling the situation an "existential crisis" in a January Bloomberg interview. Earlier this year, he predicted $1 trillion of losses on office properties alone. In the Tuesday interview, Sternlicht said Fed Chair Jerome Powell's ongoing rate hikes will continue to have consequences in the real estate sector for the foreseeable future.
"He's got a hard task with a blunt tool, and the consequence is the real estate markets are taking it on the chin because rates rose so fast. We could have handled this, but we couldn't handle it this fast," Sternlicht said. "The 1.9 trillion of real estate loans, that's a fragile animal right now."
Only one regional bank has shuttered since the start of 2024. Last month, the Federal Deposit Insurance Corporation seized $4 billion in deposits and $6 billion in assets from Republic First Bank, a regional lender operating in the Northeast with significant commercial real estate holdings.
Others have echoed Sternlicht's warnings. Scott Rechler, RXR CEO, made a similar prediction earlier this year, saying he thinks there will be 500 fewer banks in the US by 2026 as many commercial real estate loans start to mature.
"Community banks are important to our fabric," Sternlicht told CNBC on Tuesday.