They said what now? Real estate weighs in on the banking debacle

It’s not surprising the most notable real estate soundbites last week were generated in response to a pair of the biggest bank failures since the Great Recession. Signature’s and Silicon Valley Bank’s collapses roiled the real estate industry, and left a lot of questions and very few answers.

“Today, I’ve gotten no less than 30 text messages from other landlords that are pulling their money from regional banks out of fear that something bad’s gonna happen,” said Michael Shah, whose firm Delshah Capital holds three large loans with Signature.

Gaia Real Estate’s Danny Fishman was candid in expressing his fears of the potential fallout.“What we are afraid of is a snowball effect,” he said. “As soon as rumors start, there’s a run on the bank. And no bank can survive a run.”

Other areas of the country were feeling the ripples, including South Florida, which courted California investors like SVB, real estate analyst Peter Zalewski.

“Well, you got them. But you also got Silicon Valley Bank exposure,” Zalewski said. “So you live by the sword, you die by the sword.” 

More than one real estate professional said the banks’ failures took an already bad situation in real estate and made it worse. 

“The biggest problem with a bank failure is the ripple effects it sends through the economy,” said Sebastian Vallejo, managing director for Brown Harris Stevens’ Miami Beach offices. “We were already in an uncertain scenario with everything going on worldwide, with inflation and with the measures the Fed had been taking. Many people today are asking, ‘Should I invest in real estate?’” 

The ripple effects led to the trading of shares for another local bank, First Republic, was temporarily halted by the Securities & Exchange Commission after the price dropped by more than 70 percent. 

“First Republic is one of the main arteries for the tech world, and for the rich,” said agent and City Real Estate founder David Cohen, whose San Francisco-based brokerage does its payroll through the bank. “You cut that artery and you’re going to have bleeding.” 

Others, however, expressed confidence that more bank failures were unlikely. 

“We do not feel the recent events are reflective of the overall health of the banking industry,” Carmen Branch, a spokesperson for Comerica, said. “Most regional banks — including Comerica — have a more diverse, stable and ‘sticky’ deposit base and remain well capitalized and highly liquid.”

Still, despite the precarious situation, Cohen said he hoped the bank talk would die down so we could worry about other pressing matters.

“Hopefully we’ll be back to talking about AI again by the end of the week.”