On Sunday, the Kobeissi Letter, a newsletter focused on global capital markets, tweeted that over the next five years more than $2.5 trillion in commercial real estate debt will mature—claiming that that’s far more than in any other five-year period in history. All the while, rates have more than doubled and, the Letter claims, only 60-70% of commercial real estate is occupied. 

“Refinancing these loans is going to be incredibly expensive and likely lead to the next major crisis,” the Letter wrote on Twitter. “The worst part? 70% of commercial real estate loans are owned by small banks. Rapidly rising rates are teaching everyone a valuable lesson. There’s no such thing as “free” money.” 

The Letter continued with its thread, adding that “rapidly rising interest rates seem to be sending ripple effects throughout the economy. From the bank crisis to a commercial real estate crisis, the Fed plays a major role. Meanwhile, rates are still rising.”

Following an era of cheap money when interest rates were kept low, several sectors are now feeling the pain as the Federal Reserve raises interest rates, pushing the federal funds rate to a range of 4.75-5.00% and bringing the era of cheap money to its end. The commercial real estate market is feeling that pain, as it’s largely built on debt, which now costs a lot more to take on. The effect of that isn’t fully understood yet, and it’s become a bit more complicated as recent bank failures have led some to believe that tighter credit and stricter lending standards are likely to come into play, but we know it’s got Musk’s attention. 

The thread elicited a response from none other than Twitter’s CEO Elon Musk, who said: “This is by far the most serious looming issue. Mortgages too.”  

The Letter responded to Musk, claiming that this is “the product” of the Fed cutting interest rates too quickly and is playing catch up. That’s a sentiment several economists and investors hold, with a prominent voice amongst Fed critics being Mohamed El-Erian. He’s previously said, “the Fed is still playing catch-up to tame rising prices after its protracted gross mischaracterisation last year of inflation as ‘transitory’ and its initially timid steps to withdraw monetary stimulus.” 

Nonetheless, as with everything Musk tweets, there were some who were quick to agree with him and chime in with their own thoughts and others that were just as quick to mock him. One user asked Musk, “you ever pay that back rent for #Twitter HQ?” Another user, who looks to be running a Fed Chair Jerome Powell parody account, wrote: “I got this Elon. Please keep producing cars and let me handle this.” 

We all know Musk isn’t the biggest fan of remote work, to say the least, claiming remote workers are just pretending to work and that they don’t work hard. He’s made several pushes for workers to return to the office at Twitter and Tesla, among the other companies he leads. But with office buildings being a particular weakness (at least in terms of vacancy rates) within the commercial real estate sector because of the shift to remote work brought on by the pandemic, Musk could have some skin in the game, fueling his worries in regards to the maturing of commercial real estate loans and the likely issue of refinancing. 

As for the solution to commercial real estate’s impending crisis, to mitigate the risk, the Letter says the Fed “needs to cut rates ASAP and the government needs to back all deposits temporarily.”