Here's what I've got for you this week.
- Systemic Risk?
Trust is the foundation of any transactional relationship. If that breaks down on a national level, what are the implications for real estate (worst case scenario).
- Podcast Episode 706: From Aerospace to Real Estate
Former aerospace engineer, Philippe Schulligen, is my podcast guest this week. Philippe discusses how he transitioned into raising capital for sponsors as a capital allocator.
Plus, a reminder of two main initiatives this year:
- Investors:
I am getting increasingly active in finding personal real estate investment opportunities.
Follow my journey here.
- Sponsors and Capital Allocators:
Join the waitlist to get the exact system our clients have used to raise nearly $1bn in equity capital.
Join the waitlist here.
As always, please do not hesitate to email me directly if you have any questions.
Best,
Adam
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A systemic risk to real estate?
What you need to know
When Vincent Mortier, CIO of Amundi, the largest asset manager in Europe with over $2.31 trillion of AUM, warns that U.S. financial stability is at risk, commercial real estate investors should take note. The Trump administration’s latest moves to weaken independent financial regulators aren’t just about shifting bureaucratic power – they could undermine the fundamental trust that keeps the U.S. financial system functioning.
Of course, everything could come up roses as many would like to imagine – but what if that trust collapses? The fallout could rival the 2008 financial crisis, with commercial real estate at the center of the storm.
How a breakdown in trust could trigger a systemic crisis
1. Regulatory capture could lead to market instability
The administration’s push to centralize control over independent agencies, forcing them to report directly to the White House, erodes the checks and balances that global investors rely on to ensure the U.S. market remains transparent and fair. If regulatory bodies like the SEC and Fed become politically compromised, investors may start to question the reliability of financial data, lending standards, and monetary policy decisions.
The administration has already moved to gut the Consumer Financial Protection Bureau (CFPB) by sidelining its operations and removing leadership, and it is downsizing the SEC, eliminating regional director positions and reducing its ability to enforce market protections. These moves reflect a broader effort to weaken financial oversight, leaving the market more exposed to risk.
2. The U.S. Dollar’s global role is at stake
The U.S. Dollar's dominance in global trade and investment depends on one thing: Trust. If foreign investors start to believe that financial regulation is being manipulated for political gain or to feed conflicts of interest, they could dump U.S. assets, sending the dollar into a tailspin. A weaker dollar would push up inflation, drive Treasury yields higher, and increase borrowing costs across all asset classes, including commercial real estate.
3. Capital market freeze could mirror the Great Financial Crisis
If confidence in U.S. markets erodes, we could see a sudden liquidity crisis, where investors pull capital out of debt markets, banks tighten lending, and credit markets seize up – exactly what happened in 2008. Commercial real estate, which relies heavily on stable, long-term financing, would be among the first to feel the pain.
* Debt markets could dry up:
Banks and institutional lenders might retreat from CRE lending, forcing borrowers to accept higher interest rates, tougher loan terms, or even an inability to refinance existing loans.
* Cap rates could spike:
With financing harder to secure, investors will demand higher risk premiums, which would lead to lower property values.
* Distress could spread rapidly:
Highly leveraged deals, particularly in sectors already struggling (e.g., office, retail), could collapse under the pressure of rising borrowing costs and limited access to capital.
4. If the Fed is weakened, who will step in?
The Federal Reserve played a crucial role in stabilizing the financial system during previous crises. But if its independence is compromised and it becomes subject to political pressure, its ability to act decisively in a downturn could be neutralized.
While the administration hasn’t explicitly targeted the Fed (yet), the erosion of regulatory independence and executive overreach could eventually extend to monetary policy itself. And once that happens, there may be no clear path to restoring investor confidence.
Recent legal challenges to "for cause" protections for regulatory agency heads could allow the president to fire key financial regulators, including members of the Federal Reserve Board. The White House has already issued an executive order requiring independent agencies like the SEC and Federal Trade Commission to align their strategies with presidential directives, further undermining their autonomy. If this precedent extends to the Fed, its ability to maintain independent monetary policy could be severely compromised.
What You Need to Do Now
If trust in U.S. financial stability is indeed breaking down, CRE investors need to prepare for a world where capital is harder to access, financing is more expensive, and liquidity is no longer a given.
- Stress-test your portfolio:
Model out what happens if interest rates spike, capital markets freeze, or lenders reduce their exposure to CRE.
- Diversify capital sources:
Over-reliance on traditional bank debt could be a major risk. Look at private lenders, structured debt, and international capital partners as potential funding alternatives. Increase exposure to high-net-worth individuals – you were prohibited from doing that during the GFC; now you can.
- Increase cash reserves:
In a liquidity crunch, cash is king. Ensure you have adequate reserves to cover unexpected refinancing gaps.
- Monitor political and market signals closely:
The early warning signs of systemic breakdown won’t come in a single headline. Watch for capital flight, Treasury market instability, and cracks in the banking system.
Bottom Line
What’s happening now isn’t just another regulatory shift, it has the potential to be have fundamental impact on the stability of the financial system that underpins commercial real estate. If investor confidence in the U.S. collapses, we could be facing a systemic crisis on par with 2008. CRE investors who aren’t prepared for this new era of financial uncertainty risk being caught in the fallout.
Or maybe I’m completely wrong, (it has been known).
I certainly hope so.
But hope isn't a strategy so I'm founding my investment decisions this year on this possibility.
What's the worst case of taking this conservative approach? That I'm wrong and don't make as much as I could have done.
I'm OK with that.
If you’re an investor trying to make sense of the world today and would like to work through this puzzle with me as I evaluate CRE opportunities, join me by completing this form, and I’ll be in touch.
Thanks,
Adam