Billionaire investor Carl Icahn told CNBC’s “Halftime Report” on Friday that he expects the U.S. commercial real estate market will crumble, much like the broader housing market collapse of 2008.
“You’re going to have this blow up too and nobody’s even looking at it,” Icahn said.
Icahn is shorting commercial mortgage bond market and it’s his “biggest position by far,” he said.
Short selling is a way investors bet against stocks or bonds, with shorts borrowing shares from an investment bank and sell them, hoping that the asset will decrease in value. If it does drop, shorts buy the shares back and a cheaper price and return them to the bank, turning a profit on the difference.
Icahn’s short is specific to credit default swaps, or “CDS,” which are assets that back mortgages of corporate offices and shopping malls. Icahn says the housing market bubble of 2008 “happened all over again.”
“You have a bunch of mortgages … so the banks went out and loaned money against a lot of shopping malls, office buildings, hotels and retail,” Icahn. “It’s all credible institutions doing it again.”
The banks sold mortgages on commercial real estate “and then, when they did those mortgages, [the banks] sliced and diced them and put them in something called a ‘CMBX,’ an index,” Icahn said. The banks then sold bonds against these mortgages to clients. Ichan expects shopping malls and others in commercial real estate will default on these loans.
“A lot of these bonds now are in grave danger,” Icahn said. “It’s like selling insurance to someone who’s going to go to the electric chair in a couple of months.”
Overall, Ichan thinks the market’s drop was catalyzed by the coronavirus pandemic and still “has a longer way down.”
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