On January 24, Barry Sternlicht was interviewed at the iConnections Global Lodging Conference where he discussed what he's seeing in the world of commercial real estate. Barry's voice matters because he is a co-founder (with Bob Faith) and CEO of
Starwood Capital Group with $120 billion+ in AUM of mostly apartments and hotels.
On office globally he reminds the listener that:
"...there is a bright spot - the office situation is a completely US phenomenon. I just was in Munich last week, and rents in Munich are up 15%. The vacancy rate in Munich is 2% for Class A. In Seoul, Korea, it's 1%. In Tokyo, it's 4%... Everyone's back to work except for Americans. We've gone off the deep end. We don't show up for work, we don't apply for jobs, and we don't feel like we have to go back to the office."
Why is it that "everyone is back to work except for the Americans" Barry asked during a recent interview. Why is the trend seemingly isolated to American companies and workers?
We've always been told Americans are hard working, industrious, go-getters, and always willing to go the extra mile. Was that all a lie? Have Universities let us down in training the next generation of leaders?
Or do we blame the bosses? Have years of hiring and promotion policies based on everything except merit finally caught up to Americans. Have American companies become incapable of making decisions for the greater good if even only a handful oppose, often on emotional and self-serving grounds?
Before the lockdowns 17% of jobs were remote. I don't believe Barry is suggesting the elimination of remote work, it's the return to the baseline of nearly 1 in 5 jobs as remote.
Barry also gives his two cents on interest rates and impact on valuations:
"We have a problem in real estate. In every sector of real estate, not just office, because of the 500 basis point increase in rates that was vertical...The office market has an existential crisis right now... it's a $3 trillion dollar asset class that's probably worth $1.8 trillion [now]. There's $1.2 trillion of losses spread somewhere, and nobody knows exactly where it all is... There are buildings in New York that were bought for $200 million... the loan was $100 million... and we [personally] thought it was worth $30 million. There's a building for sale right now in San Francisco. It was bought for $850 per sq ft. The loan was $450 per sq ft. They'll [probably] sell it for $250 per sq ft... that's $0.25 on the dollar...That would mean we lost three-quarters of the total asset class..."