Starwood's Barry Sternlicht Has Just About Had It

Almost six months ago, Barry Sternlicht forecast a more arduous recovery from the coronavirus than many experts in the real estate industry were predicting. He said a second wave of infections would likely cripple the economic recovery, but states would both refuse to shut down again and not do enough to save small businesses.

Much to his disappointment, he turned out to be right.

Speaking again on the Walker & Dunlop Walker Webcast on Wednesday, the Starwood Capital Group CEO discussed a wide array of topics, from his predictions for malls and hotels to where he is deploying his personal capital in the current market. But he also inveighed against some of the forces he sees as killing businesses large and small across the country.

“I can’t understand why we can’t get to that level,” Sternlicht said of the insufficient state of coronavirus testing in the United States. “South Korea, Europe, China: all of them have figured this out better than we have. Our completely dysfunctional leadership at the state, city and national level has let this go way beyond where it should have been.”

Sternlicht, who has an estimated net worth of $3.2B, spoke about how surprisingly difficult it was even for him to receive a coronavirus test. If the nation had cheaper, more frequent and more widespread testing — to the point that even building owners could test every person that walked through their doors — it would go a long way toward giving Americans the confidence to return to offices, stores and hotels, he said.

By returning Americans to a semblance of their normal routines, more testing could power the recovery for a diverse range of businesses from dry cleaners to restaurants that rely on the office lunch rush. 

While the economy languishes, though, the wrong companies may be gaining ground. Sternlicht saved some of his harshest words for Amazon — a favorite target of his — which he blames for powering the wide-scale demise of local businesses during the coronavirus pandemic. He called for breaking Amazon Web Services into its own entity to stop its profits from effectively subsidizing money-losing e-commerce deliveries that mom-and-pop stores can’t keep up with.

“An Amazon Prime account was $75 when it was introduced. It’s $125 now, and when there’s no more physical retail left, it’s going to cost $20K,” Sternlicht said. “We’re creating a monopoly the scale of which the world has never seen.”

Even the luxury fashion houses, one of the last bastions of retail that operated brick-and-mortar and e-commerce stores independently of Amazon, are now showing cracks, Sternlicht said. Amazon has just launched its own pseudo-exclusive luxury stores online. 

But there are other forces at work tearing apart the fabric of American cities, in Sternlicht’s view. He leveled criticisms at New York Mayor Bill de Blasio for waiting to open restaurants to indoor dining and for what he called a ridiculous plan to create randomized coronavirus checkpoints along bridges and tunnels running throughout New York.

“It’s going to empty New York of everything and everybody,” said Sternlicht, who was calling in from Starwood Capital’s office on 10th Avenue in New York. “I can’t understand the agenda. [Mayor de Blasio] may single-handedly be responsible for a 20% decline of property values in NYC.”

New York is not alone in Sternlicht’s estimation. States like California and Illinois are losing residents to more business-friendly — and income-tax-free — states like Florida and Texas. Sternlicht, who is himself a resident of Florida, said that he also sees more investment potential in those markets.

He pointed specifically to the market for hospitality; in states like New York, labor unions work to keep labor consistent throughout the week, meaning hotels have to hemorrhage cash waiting to turn a profit on the weekend, when hotels are more full, he said. In Florida, labor is more flexible, meaning hotels are recovering there more quickly. 

Sternlicht appeared somewhat ambivalent on the outlook for the hospitality industry in general. He ran through typical occupancy for some of the 1 Hotels, a brand he founded in 2015 — Manhattan and Miami are running at about 20% occupancy, LA in the low 30% range, but the Brooklyn location, in the posh Dumbo area, is leading the portfolio with around 50% occupancy, which Sternlicht attributed to New Yorkers “staycationing” at the hotel.

But overall, Sternlicht predicted that between 35% and 40% of the hotels in New York are likely to close within the next year. When that happens, Starwood could very well be positioned to make acquisitions. Sternlicht hinted at the impending acquisition of a hotel at a deep discount in the United Kingdom, one in which his company could pour in almost three times the sale costs in renovation work.

Sternlicht was also very positive on the future of luxury vacation experiences that can be adapted to social distancing, including the wellness-hospitality Aman resorts, as well as on entry-level single-family homes and workforce housing, the demand for which is spiking with the pandemic still underway. 

However, the Starwood CEO appeared baffled by the sky-high valuations of companies on the stock market, many of which are valued at dozens, if not hundreds, of times more than their revenue. A year from now, he predicted, the Dow will have shed 3,000 points, almost 11% of its current value.

“Liquidity driving strange behavior,” Sternlicht said. “These are not startups, this is Google, Microsoft and Tesla, swinging $100B in a day in market cap. It’s a very strange collection of forces that creates that kind of momentum trading, and it usually doesn’t end well.”

On Sept. 30, Walker will host Tom Gardner and David Gardner of The Motley Fool. Register here for the event.

This feature was produced in collaboration between the Bisnow Branded Content Studio and Walker & Dunlop. Bisnow news staff was not involved in the production of this content.