Billionaire Sternlicht sees US$1 trillion loss in US office values

BILLIONAIRE Barry Sternlicht sees more than US$1 trillion of losses for office real estate, calling the properties “one asset class that never recovered” from the pandemic.

“The office market has an existential crisis right now,” which is largely a United States phenomenon because workers have not gone back to their desks, Sternlicht said on Tuesday (Jan 30) at the iConnections Global Alts conference in Miami Beach.

Once a US$3 trillion asset class, offices now are “probably worth US$1.8 trillion”, said Sternlicht, chief executive officer of Starwood Capital Group. “There’s US$1.2 trillion of losses spread somewhere, and nobody knows exactly where it all is.”

Property owners have struggled to refinance loans as building values declined and the US Federal Reserve increased interest rates rapidly over the past two years. Where regional banks have previously been a source of funds for real estate owners, they have disappeared from the market, he said.

“We’re in the business of getting loans,” he said. The banks “don’t show up, they’re not even playing. So the alternatives are the debt funds, which are having a field day”.

The Fed’s policies have left a “serious mess in capital markets and real estate and anything that’s yield related”, said Sternlicht, who expects the first rate cut to come in June. BLOOMBERG