Fed Fears "Notable" Financial System Vulnerability As Renowned CRE Investor Tells Team 'Stop All NYC Underwriting'

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by Tyler Durden
Thursday, Feb 22, 2024 - 08:05 PM

Democrat politicians in cities such as New York, often criticized for their disastrous progressive policies, have transformed the metro area into what some believe is a 'hellhole,' overrun by violent crime, migrants, homelessness, open-air drug markets, and constant chaos. According to one real estate investor with a commercial real estate portfolio worth billions of dollars, Democrats are quickly transforming NYC's CRE market into an unattractive option for investment. 

On X this week, real estate investor and influencer Grant Gardone said his real estate team at Cardone Capital has "Immediately discontinued ALL underwriting on New York City real estate." 

"The risk outweigh the opportunities at this time. Recent political decisions will continue to deteriorate price and benefit states that don't have these challenges," Gardone said. 

He told his real estate team to concentrate on "Texas & Florida" markets where the political environment is not hostile, and overall state economies are friendly towards investors. 

"Why would I buy in New York City where you can't actually collect rent, taxes are higher, & illegals are treated better than property owners," Cardone wrote in a post last month. 

Adding this... 

And the investor pointed out on X, "This NYC Judge will sell more real estate in Florida than all the real estate agents & broker's combined." 

Cardone Capital's website says it manages a real estate portfolio with more than 500,000 square feet of CRE office space and 11,903 apartment units valued at approximately $4 billion. 

"We invest for 14,000 investors at Cardone Capital that depend on cash flow. And if I can't predict the cash flow because of some ruling, or because of the migrants, or because I can't evict people, New York City just keeps doing every single thing they can to sell real estate in Florida, not sell real estate in New York," the investor said in a Fox News interview on Wednesday. 

Meanwhile, O'Leary Ventures chief Kevin O'Leary echoed a similar warning:

"New York was already a loser state, like California is a loser state. I would never invest in New York now. And I'm not the only person saying that," O'Leary said. 

Furthermore, in the Federal Reserve's last meeting, the minutes from the session, published on Wednesday, showed the CRE downturn is only gaining steam:

CRE prices continued to decline, especially in the multifamily and office sectors, and low levels of transactions in the office sector likely indicated that prices had not yet fully reflected the sector’s weaker fundamentals.

The minutes noted: 

Leverage in the financial sector was characterized as notable. In the banking sector, regulatory risk-based capital ratios continued to increase and indicated ample loss-bearing capacity in the banking system.

And also this:

The staff provided an update on its assessment of the stability of the U.S. financial system and, on balance, characterized the system’s financial vulnerabilities as notable. The staff judged that asset valuation pressures remained notable, as valuations across a range of markets appeared high relative to fundamentals

Back to NYC's CRE market - well done, Democrats. The blowback wave from your failures is accelerating in a market that only points down.