Sternlicht Calls Real Estate Market "Category Five Hurricane"

Good morning,

Barry Sternlicht, the CEO of Starwood Capital, describes the current real estate market as a "category five hurricane," Blackstone has reached $1 trillion in AUM, and home sales experienced a 19% YoY decline in June. Let's delve into today’s topics.

📈 Market Update

🌀 Sternlicht Calls Real Estate Market “Category Five Hurricane” Due to Rate Hikes

In an interview with Bloomberg, The Starwood CEO said the company was eyeing distressed opportunities as the Fed’s sharp increase in interest rates has caused property values to drop. Sternlicht foresees 400 to 500 banks failing and noted a severe credit contraction. The CEO has been heavily critical of the Fed’s swift interest rate increase. However, despite the current challenges, he remains optimistic about the future of the industry once the Fed's actions settle.

Sternlicht also discusses his move to Miami and the impacts of the work-from-home trend on the real estate market. He emphasizes the importance of finding niches in real estate and being adaptable in investment strategies.

🫰 BX Reaches $1T in AUM

BX is the first alternative asset manager to reach $1 trillion assets under management despite earnings dropping 39% in Q2 2023. Real estate was BX’s worst performing segment, with distributable earnings dropping 64% to $639M due to higher interest rates and economic uncertainty.

While BX expects more distress in real estate, they are long-term bullish. COO Jonathan Gray sees opportunities in global logistics, digital infrastructure, energy transition, life sciences, student housing, and lending and credit. The firm is also partnering with banks and lenders to offer financing for home improvement, autos, and environmentally friendly initiatives.

🏠️ Residential Home Sales Fall 19% YoY in June

High mortgage rates and a shortage of available properties has led to a large decline in home sales. Despite the decline, prices have remained relatively high due to the lack of supply. The average median existing-home price is $410k, only 9 bps lower than last June. The western half of the U.S. has seen the greatest declines, while prices continue to rise in the northeast.

📊 Chart of The Day

Further Reading

• Hedge Funds Brawl Over Battered CRE (WSJ)

• CRE Carrying Costs Are Nearly as Burdensome as Interest Rates (GlobeSt)