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Scott Rechler, an executive who also serves on the board overseeing the New York Federal Reserve warned on Twitter of potentially systemic problems in the real estate finance market and called on the industry to work with authorities to avoid things getting out of hand.


$1.5 trillion in commercial real estate debt is set to mature in the next three years, Rechler, CEO of RXR, a property manager and developer, tweeted: “The bulk of this debt was financed when base interest rates were near zero. This debt needs to be refinanced in an environment where rates are higher, values are lower, & in a market with less liquidity.”


Rechler said he’s joined with the Real Estate Roundtable “in calling for a program that provides lenders the leeway and the flexibility from regulators to work with borrowers to develop responsible, constructive refinancing plans.”


“If we fail to act, we risk a systemic crisis with our banking system & particularly the regional banks” which make up over three quarters of real estate lending, which will in turn put pressure on local governments that depend on property taxes to fund their operations,” Rechler wrote.


The executive weighed in amid concern in that aggressive Fed rate hikes aimed at lowering high inflation will also break something in the financial sector as collateral damage to the core monetary policy mission.


The Fed nearly held off on raising its short-term rate target on Wednesday after the collapse of Silicon Valley Bank and Signature Bank. The failure of Silicon Valley Bank was linked to the firm’s trouble in managing its holdings as bonds repriced to deal with higher Fed short-term interest rates.


Fed rate rises have hard hit the real-estate sector, and commercial real estate has also been hobbled by the shift away from in-office work during the pandemic. Also weighing in via Twitter, the former leader of the Boston Fed, Eric Rosengren, offered a warning on real estate risks, echoing a long-held concern of his dating back several years.


He pointed to significant real estate investment index declines, saying, “many bank lenders will be pulling back just as leases roll, with high office vacancies and high-interest rates. Regional bank shock and troubled offices will be negatively reinforcing.”


Speaking at a press conference Wednesday following the Fed’s quarter percentage point rate rise, central bank leader Jerome Powell said, “we’re well aware of the concentrations people have in commercial real estate,” while adding, “the banking system is strong, it is sound, it is resilient, it’s well-capitalized,” which he said should limit other financial firms from hitting the trouble that damaged SVB.