Berkshire's Charlie Munger warns US commercial real estate market

Charlie Munger of Berkshire Hathaway has issued a warning regarding the US commercial property market.

Munger stated that American banks are currently holding significant bad loans due to the decline in property prices.

The current situation is not as dire as in 2008, as stated by the Financial Times. Adversity is an inevitable occurrence in the banking industry, as it is in any other industry.

During prosperous periods, it's easy to develop unfavourable routines. In times of adversity, significant losses are incurred, according to the Financial Times," stated the Berkshire Hathaway executive as the televised First Republic Bank saga unfolded in the background.

Berkshire Hathaway has provided financial assistance to distressed American banks, including a $5 billion investment in Goldman Sachs during the economic downturn of 2008 and a comparable amount to Bank of America in 2011.

There have been some disappointments in the banking sector, as Munger has noted.

Running a bank wisely is no easy feat. There are numerous temptations to make the wrong decisions. We are currently facing a challenging situation with many distressed office buildings and shopping centres in the real estate market. There is a significant amount of distress present in the current landscape.

Munger has observed that banks are reducing their lending activities towards commercial developers.

"As of today, all banks nationwide have significantly tightened their real estate loan policies compared to six months ago," he stated. The operational costs associated with their management appear to outweigh any potential benefits.

As per Munger's statement to the FT, a major chunk of his wealth has been generated from four key investments, namely Berkshire, Costco, a fund managed by Li Lu's Himalaya Capital, and Afton Properties, a real estate enterprise that possesses apartment buildings in California and New Jersey.