The rental and single-family home markets are the best they’ve been in years, and people are “seriously wealthy,” spending money on everything, says billionaire Barry Sternlicht.
But federal spending bills are a cause for concern, Sternlicht, Starwood Property Trust’s chairman and CEO, said on the real estate investment trust’s second quarter earnings call Thursday. The government, he said, should find a way to get people back to work, “rather than paying them to sit on the sidelines, buy video games, iPhones and Netflix subscriptions and all their goods that are made in China.”
Washington is “putting kerosene on an open fire” with big spending bills “that will continue to power this economy forward but in a very unbalanced and, in my opinion, unhealthy way,” Sternlicht continued.
Underwriting real estate has become more complicated now that cap rates in some asset classes are falling quickly, he said.
Pricing has become stretched in multifamily and industrial real estate. Hotel pricing “remains not so attractive,” and the market is “a little ahead of itself,” he continued. Office vacancy rates are also still high in New York and San Francisco, as landlords face rising real estate taxes and high construction costs.
Starwood executives touted the second quarter performance of the REIT’s commercial lending portfolio, including adding $1.7 billion in four new loans. The portfolio has grown nearly 25 percent to $11.5 billion, according to CFO Rina Paniry. Starwood also executed two collateralized loan obligations totaling $1.8 billion.
Starwood, based in Greenwich and Miami Beach, reported $116.3 million in second quarter earnings, or 40 cents per share, down nearly 17 percent from the same period in 2020, but up about 5 percent compared to the first quarter of this year. The REIT reported $290.9 million in revenue for the second quarter, up about 9.5 percent compared to the same period of the previous year.
Starwood’s exposure to office and hotel loans, the weakest sectors, is down 24 percent and 11 percent, respectively, said Jeff DiModica, president of Starwood.
The REIT is looking to do more lending abroad, where there are “better spreads, less competition” and the market is “more relationship-based,” Sternlicht said.
The company’s stock rose 0.6 percent to $25.85 per share as of 12:52 p.m. Thursday following the earnings call.
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