Marc Rowan, the co-founder of Apollo Global Management Inc., says that the next wave of turmoil across the financial sector will likely come from the commercial real estate market.

“It’s a bad day to be an office owner in San Francisco and Chicago,” Rowan, who is also Apollo’s chief executive officer, said Monday at the Milken Institute Global Conference in California.

The stresses won’t be systemic, but they’ll be concentrated, according to Rowan. “We are going to see losses,” he said.

US office vacancy rates have risen more since the start of the pandemic than they did during the financial crisis, according to broker Cushman & Wakefield. Meanwhile, US commercial property prices fell 15% in the 12 months through March, while prices for offices fell 25%, according to Green Street.

“Every piece of real estate, everywhere in the world, that was purchased pre-the run up in interest rates, as a result of the change in interest rates, is now worth less,” said Rowan. “It does not mean it won’t come back, it does not mean it won’t ultimately be a good investment, but in the short term, we have significant dislocation.”

As far as corporate credit goes, Rowan isn’t surprised that investors are rushing to lock in the best yields on debt in over a decade. The average US investment-grade bond yielded 5.1% as of Friday, according to data compiled by Bloomberg.

Rowan says now is a good time to invest in company debt and that most of the credit downgrades to junk are already priced into the market. When allocating his firm’s capital, he prefers to be at the top of the capital structure, investing in senior secured investment-grade debt.

“I think this is an amazing entry point for credit,” he said. “Liquidity has eroded, banking crises has further eroded it. We have a unique entry point for credit. It will not always be this good. Equity has adjusted somewhat, but not nearly as much as credit.”

--With assistance from John Gittelsohn.

This article was provided by Bloomberg News.