Berkshire’s Charlie Munger issues warning for US commercial property market

Berkshire Hathaway Vice-Chair Charlie Munger said Monday that a storm is brewing in the U.S. commercial property market.

As property prices fall, Munger said American banks are “full of bad loans.”

“It’s not nearly as bad as it was in 2008,” he told the Financial Times. “But trouble happens to banking just like trouble happens everywhere else.”

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“In the good times you get into bad habits. When bad times come they lose too much,” the Berkshire Hathaway executive added as the First Republic Bank saga aired on television behind him, the Financial Times reported. 

Berkshire Hathaway has supported other troubled U.S. banks, giving $5 billion to Goldman Sachs in 2008 during the economic recession and a similar total to Bank of America in 2011.

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Munger said, “We’ve had some disappointment in banks, too.”

“It’s not that damned easy to run a bank intelligently, there are a lot of temptations to do the wrong thing,” he continued. “A lot of real estate isn’t so good anymore, and we have a lot of troubled office buildings, a lot of troubled shopping centers. There’s a lot of agony out there.” 

Munger also noted that banks were already pulling back from lending to commercial developers. 

“Every bank in the country is way tighter on real estate loans today than they were six months ago,” he explained. “They all seem to be too much trouble.” 

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Munger told the FT that he had made most of his money from just four investments: Berkshire, retailer Costco, his investment in a fund managed by Li Lu’s Himalaya Capital and Afton Properties, a real estate venture that owns apartment buildings in California and New Jersey. 

According to Forbes estimates, Munger’s wealth is $2.4 billion.