Munger: “A lot of agony” in CRE loans

Vice chairman of Berkshire Hathaway says banks have a lot of bad commercial real estate loans

Charlie Munger (Getty Images)
Charlie Munger (Getty Images)

Never one to be a shrinking violet, Charlie Munger has thoughts on the commercial real estate market, and none of them are particularly good.

“A lot of real estate isn’t so good any more,” Munger, the 99-year-old vice chairman of Berkshire Hathaway, told the Financial Times in an interview. “We have a lot of troubled office buildings, a lot of troubled shopping centers, a lot of troubled other properties. There’s a lot of agony out there.” 

Banks are saddled with bad loans, as interest rates increase and property values fall, he told the outlet. Munger’s comments come at a time when Silicon Valley Bank and Signature Bank both collapsed last month, and the FDIC is seeking a buyer for San Francisco-based First Republic Bank, leading some to believe of a pending commercial real estate collapse.

“It’s not nearly as bad as it was in 2008,” he told the Times. “But trouble happens to banking just like trouble happens everywhere else. In the good times you get into bad habits.  … When bad times come they lose too much.” 

He noted that banks have tightened their commercial real estate lending, particularly over the past six months. The Times noted that Berkshire Hathaway hasn’t stepped into the current banking fray like it had during other shaky times.

“Berkshire has made some bank investments that worked out very well for us,” Munger said to the Times. “We’ve had some disappointment in banks, too. It’s not that damned easy to run a bank intelligently, there are a lot of temptations to do the wrong thing.” 

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Munger, who is worth more than $2 billion, isn’t one to hold back his opinions on much, if anything. During the interview with the times, Munger said,  “I do not think that we can take it as a given that American democracy will prosper and flourish forever.”

An amateur architect, the Omaha native touched off some controversy last year over his design for a $200 million “megadorm” that he financially backed at the University of California, Santa Barbara. 

Munger’s design for the 11-story dorm complex omits windows from nearly all dorm rooms. Munger argues this was necessary to allow for individual bedrooms and better common spaces.

In December, a panel of UCSB faculty and community members released a report critical of the dorm.

“It’s all horseshit,” Munger told The Real Deal at the time. “It’s ridiculous.”

— Ted Glanzer