Downward angle icon Downward angle icon. Starwood Capital Group Chairman and CEO Barry Sternlicht speaks at the Milken Institute Global Conference in Beverly Hills, California, on May 3, 2022. Patrick T. Fallon/AFP via Getty Images According to Bloomberg, billionaire Starwood CEO Barry Sternlicht sees office property losses reaching $1 trillion. He slammed the Fed for leaving “severe disarray” in the real estate market. Office values have plummeted as remote work proves to be a lasting legacy of the pandemic.
Barry Sternlicht, the billionaire CEO of Starwood Capital, said the struggling office market is on track to lose $1 trillion.
Sternlicht said at the Global Alternatives conference in Miami Beach that U.S. office property, once a $3 trillion market, is now worth about $1.8 trillion, according to Bloomberg. The sharp decline in value is a result of remote work becoming a lasting legacy of the coronavirus era.
The billionaire described the dilemma facing the office sector of the commercial real estate market as an “existential crisis” and blamed the Federal Reserve for leaving “severe disarray” in the capital and real estate markets.
In the fourth quarter of last year, the U.S. office market experienced its fifth consecutive quarter of negative net absorption of office space, with 5 million square feet of new supply helping to push the overall office vacancy rate to a 30-year high of 18.6%, according to CBRE.
The work-from-home trend caused by the pandemic is still continuing with no clear signs of reversing, while concerns are growing over soaring commercial real estate debt, with estimates of nearly $1.5 trillion in loans coming due over the next few years.
The Fed's aggressive rate hikes since 2022 have stymied commercial mortgage refinancing, forcing property owners to seek new borrowing at higher rates backed by their depreciated office space.
President Joe Biden's administration is encouraging developers to convert unwanted office buildings into apartments to ease the U.S. housing shortage, but such redevelopment is costly and not available for all buildings.
Analysts at Capital Economics predicted this month that office building prices will fall another 10 percent in the coming months, bringing the total decline in U.S. office building prices from peak to trough to 20 percent.