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Starwood CEO Barry Sternlicht Warns Of Commercial Real Estate's Balance Sheet Crisis

Starwood CEO Barry Sternlicht Warns Of Commercial Real Estate’s Balance Sheet Crisis

Starwood Capital Group CEO Barry Sternlicht said commercial real estate is facing a balance sheet crisis, even though the underlying assets are performing.

Borrowers will have trouble refinancing debt because interest rates have risen 500 basis points, Sternlicht said, during a May 8 interview with Bloomberg at the Milken Institute Global Conference in Beverly Hills, California.


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“Many of the traditional lenders are backing out because they’re full up to their gills in real estate loans,” Sternlicht said.

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While multifamily may be overbuilt in some growth markets, Sternlicht said it will be absorbed in the next 18 months and the rental market will again be healthy.

Office properties are distressed in some markets, but good buildings are fully leased, asking strong rents and securing them, Sternlicht said. Good office properties are relevant and people smile when they walk in.

Sternlicht shared an anecdote about Starwood’s accounting staff requesting to work from home before the Miami-based company built a new building. Even though Starwood permitted its staff to work from home, everyone wanted to be back in the office, Sternlicht said.

“There’s nothing like being together,” he said. “They have lunch together, they chat, they talk about their dogs.”

Sternlicht predicts, that as the labor market softens, workers will spend more time in the office, but corporate America must offer benefits like day care to make it more attractive.

During a May 7 interview with CNBC, Sternlicht also predicted that America’s 4,000 regional and community banks are likely to start failing at a rate of one or two per week because they don’t have the cash flow to handle major losses on real estate debt.

Since March of last year, five banks have collapsed, starting with New York-based Signature Bank and followed by First Republic Bank in May, according to the Federal Deposit Insurance Corp.

“I think people are looking for these cracks, and you’re going to see the crack develop now,” Sternlicht said. “You’re going to see a regional bank fail every day…or every week, maybe two a week.”

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