America's real estate market could see a $1 trillion default wave as things turn 'very ugly,' billionaire CEO says

"It's going to be a very, very ugly market owning real estate over the next 18 months to two years," Cantor Fitzgerald chief Howard Lutnick said.

• Cantor Fitzgerald CEO Howard Lutnick is warning of a "generational change" coming for real estate.
• Higher interest rates risk sparking a $1 trillion debt default wave Lutnick warned.
• That could wipe out "hundreds of billions" in value for property owners, he added.

America's real estate sector could see up to $1 trillion of debt defaults over the next few years, according to Cantor Fitzgerald CEO Howard Lutnick.

The billionaire Wall Street executive pointed to trouble brewing in the US real estate market, particularly in commercial real estate, where experts say there's around $1 trillion in debt approaching maturity over the next few years. 

That debt load poses a huge risk for the industry, Lutnick said, as interest rates look poised to remain higher for longer. Though some investors are expecting the Federal Reserve to slash rates aggressively this year, interest rates will most likely stay where they are, he predicted, estimating the Fed would trim rates by 75 basis points at most this year.

A higher cost of borrowing means borrowers will have trouble refinancing existing loans and lenders could shy away from financing riskier projects. 

The result could be a huge wave of defaults and plummeting property prices, Lutnick warned. He estimated $700 billion to $1 trillion in real estate debt could default, which could slash "hundreds of billions" in real estate equity. 

"Real estate equity, REITS are going to be in trouble. A lot of them will be wiped out. So many defaults," Lutnick said in a recent interview with Fox Business, describing the shift as a "generational change." 

"I think it's going to be a very, very ugly market owning real estate over the next 18 months to two years," he added.

Experts have been warning of trouble coming for the commercial real estate sector since early 2023, when banking turmoil tightened credit conditions for regional lenders, which finance a large percentage of all commercial real estate loans.

The office market in particular faces major challenges, as remote-work trends look to be a lasting legacy of the pandemic. Economists and real estate experts have predicted there's even more pain ahead for office owners and that it could take years for the sector to see a comeback.