Barry Sternlicht predicts “tipping point” for NYC

Starwood Capital CEO foresees a ‘soak the rich’ solution

Until a vaccine can prevent the spread of Covid-19, New York City risks losing residents and tax revenue, creating a “vicious cycle” that could hobble the city, according to Barry Sternlicht.

The Starwood Capital Group CEO said in an interview on Bloomberg that once people and capital leave, it will be hard to get them back because of New York City’s relatively high taxes, rent law and support for unions.

“If they raise taxes, more people leave and the social burden of those that are less fortunate falls on an ever-smaller revenue base,” Sternlicht said. “The services of the city get worse, the city gets dirtier, the police show up less often. It’s a negative cycle.”

He also predicted that the city’s office rents could fall by 25 percent and expenses would increase, driving office values down by 40 percent. And if more city dwellers leave, residential landlords would face a similar problem.

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The investor moved his company Starwood Capital from Greenwich, Conn., to Miami in 2018 due to a more favorable tax climate.

Starwood has seized on the pandemic as a financial opportunity, buying up real estate-backed securities in recent months in the belief that they are undervalued. Its acquisition of shares in hotel chain Extended Stay America this spring was driven by a similar strategy.

Yet it has been hurt by Covid, too.

In May and June, Starwood missed $2.7 million in payments on securitized debt tied to five shopping malls anchored by bankrupt tenants including Sears and J.C. Penney.

Sternlicht blames what he calls a “blue state mentality” for prolonged economic consequences following the coronavirus, saying that “red states” are growing because they have lower taxes, support unions less, and don’t impose limits on developers who want to raise rents.

He does, however, support regulating Amazon, which he likens to the pandemic, because of its effect on the retail landscape. [Bloomberg] — Orion Jones