Barry Sternlicht was the featured guest at the Distinguished Speakers Series held on Nov. 21 at the Standard Club. Sternlicht is the Chairman & Chief Executive Officer of Starwood Capital Group, a private investment firm he formed in 1991 focusing on global real estate, hotel management, oil and gas, energy infrastructure, and securities trading.
Using an inordinate number of slides Sternlicht gave a sweeping account of just about everything that related to the global economy. His remarks covered a range of investment topics including; the domestic housing market, New York City property prices, currencies, quantitative easing, oil prices, global real estate valuations, and the 2015 outlook for the U.S. and global markets.
A subset of Sternlicht’s presentation comments included:
- The top 1% are getting richer in all markets. This subgroup of the investing population is no longer willing to solely invest in domestic or global markets. Instead, these investors are now buying up real assets in prime locations – South Americans investing in Miami, Asians investing in New York, Russians investing in London, etc. These global buyers are pushing higher purchase prices in these ‘world class’ cities. As a result, buyers looking for reasonably priced real estate will have to look to ‘second tier’ cities.
- The U.S. government deficit will continue to grow despite the spending bill passed at the start of 2014. Entitlements – Medicare, Medicaid, and Social Security will increase the deficit dramatically over the next decade. To combat this the retirement age will be raised, and benefits will be reduced.
- The movement of populations from high tax states to low tax states will accelerate as more baby boomers retire. This will drive real estate growth in those low tax states and provide for slow or even negative growth in high tax states.
- Growth in retail rents is and will continue to be bifurcated. Luxury retail malls will continue to outperform in terms of high occupancy rates, and growth in rents. Properties that are not at the A level will likely exhibit slow or flat growth in rents.
- The Euro zone and Japan will institute their own form of quantitative easing. This will cause the dollar to rise against the Euro and Yen. The U.S. has promoted a weaker currency over the past several years with lower interest rates and growth in the money supply. The stagnating economies in Europe and Japan will push policy makers to weaken their own currencies in an attempt to reflate their respective economies with increased exports. Even so, a greater currency war will be fought over the next several years with many nations fighting to have a weaker currency.
- The Federal Reserve will keep interest rates lower for a longer period due to a lack of any inflation on the horizon and lower energy prices. In addition U.S. yields are higher than in Europe and Japan, which will cause flows into the U.S. market, keeping the long end of the curve depressed.
Sternlicht ended his presentation by taking questions from the audience and sharing details of his latest hotel and apartment project – the ultra-luxury Baccarat Hotels and Resorts development in midtown Manhattan. This development underscored several of the points Sternlicht made earlier – premium properties commanding outsized rents, and investing in world-class cities for outsized returns.