Well-known investor, venture capitalist, and TV personality Kevin O’Leary has strong opinions on a wide range of market trends. While Barbara Corcoran is the real estate expert on “Shark Tank,” O’Leary keeps his eye on the market, and from what he has observed lately, he hasn’t been too impressed. But there’s one area that has captured his interest—and it’s drawing a lot of interest from other people as well.
Back in March, O’Leary appeared on Fox News to share his concerns about an impending commercial real estate collapse. While the small towns get nailed pretty hard, said O’Leary, large metropolitan areas like Boston are having trouble filling offices. In fact, big cities still have very light traffic, despite return-to-office policies ramping up. Occupancy rates stay low, with many companies reducing space or even vacating upon the opportunity of a lease expiration.
Of most concern to O’Leary, though, is the financial pressure many community and regional banks face with their large amounts of real estate debt. He added that with more than $2.2 trillion in debt coming due before 2028—much of it borrowed at lower interest rates—the ability to refinance could be difficult. A report earlier this year released by Klaros Group found nearly 300 small banks are at risk of failing due to high levels of commercial real estate loans on their books.
He has also questioned whether most of the large office buildings in big cities across the country can be turned into residential areas. He said to Larry Kudlow of Fox Business that his recommendation might be demolishing the buildings if they cannot be repurposed for residential use.
If office tenants aren’t filling them and they can’t be converted into housing, other uses could be explored. O’Leary suggested using the buildings for temperature-controlled storage. While the pipes, plumbing stacks, and elevator shafts in these buildings won’t serve apartments well, he said, they can be easily used as vertical warehouses for sorting and packing goods.
What really gets him going is the growth potential in data centers, particularly those used for AI applications. Most of the existing buildings can’t be converted into data centers, so many new buildings need to be constructed for that purpose—all with specifications like permits, fiber infrastructure, and power supplies on a massive scale. O’Leary mentioned ongoing projects in Oklahoma, West Virginia, and North Dakota.
O’Leary is hardly alone in being hot on this trend. On its recent earnings call, Prologis—the largest REIT in the world—announced it would be aggressively expanding into the data center space. Chief Financial Officer Timothy Arndt said that the company has secured 1.3 gigawatts of power and will commit $7 billion to $8 billion to data centers over the next five years.
Whether you want to invest privately in projects like Kevin O’Leary or buy shares in data center REITs like those mentioned, this is an emerging trend worth monitoring. Big investments pouring into AI and rising demand for generative AI chips indicate that O’Leary’s predictions could be right.
