Starwood's Sternlicht says real estate health tied to tech

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The fate of U.S. office markets is intertwined with that of the biggest technology companies, Starwood Capital Group Chairman Barry Sternlicht said.

"When you look at things like office absorption in this country, 40% is like 10 companies — they are the office market," Sternlicht said at a conference sponsored by the NYU Schack Institute of Real Estate in New York on Wednesday. "It's not the banks, it's not the service companies, it's these tech companies — if they hiccup in the public markets, not only does the S&P go down, the real estate markets will go down."

Tech giants such as Inc. and Alphabet Inc. are "critical" to the health of the real estate market and the economy because they lease large amounts of office space in U.S. cities, Sternlicht said. That concentrated demand makes tech stocks and real estate markets more closely correlated than they have ever been, he said.

Separately, Sternlicht said that Starwood has invested about half of its $7.55 billion fund that closed in April 2018 in properties such as the Wells Fargo Centers in Minneapolis and Portland, Ore., and the St. Regis Princeville Resort in Kauai, Hawaii, which it intends to renovate.

"I'm surprised, frankly, that this late in the cycle we've found so many things to do," he said.

Sternlicht also referred to Tier REIT Inc.'s agreement to be acquired by Cousins Properties Inc. last week. "It's a company we'd want to buy but the pricing was not suitable for us," he said.

Starwood, based in Miami, currently prefers Europe to the U.S. and recently bought two properties in Milan, one of which includes WeWork Cos. as a tenant, Sternlicht said. He added that Starwood is "pencils down" on new investments in London until the outcome of Brexit becomes certain, barring unique opportunities such as its purchase of a Southbank Central development near the River Thames.

Sternlicht also commented on politics. He said the tax cut passed under President Trump's administration was overdone, citing 25% as a more reasonable corporate rate than the 21% figure that was enacted.

Trump's policies regarding China are "a real, worthy fight that I'm glad he's fighting," said Sternlicht. "Practically everything else I could throw out the door," he added. "Some of it's rational, but a broken clock is right twice a day and that's about the right strike zone for him."

Another real estate investor, Sam Zell, chairman of Equity Group Investments Inc., also weighed in on U.S. politics when he spoke during lunch at the same conference.

"I wish we had a little more stable leadership, which we don't," said the 77-year-old, who also expressed concern about refugees from Venezuela destabilizing Latin America.

Bloomberg News
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