Sternlicht Blasts Fed Again For Monetary Policy As Starwood Property Profit Drops

Starwood Property Trust reported a net income of $339.2M, or $1.07 per share, for 2023, with revenue of $2.05B, besting expectations — though it is a considerable contraction compared with 2022 when the REIT's net income was $871.5M, or $2.74 per share.

“The real estate industry just has a balance sheet crisis affecting every area asset class,” Starwood CEO Barry Sternlicht said during the company's earnings call on Thursday.

He further characterized the plight of the industry as an “unintended consequence” of the Federal Reserve's monetary policy, which he believes is the result of a misreading of inflation data, especially rents.

“So it's not clear why we use data for residential that's not current, while we use current data for energy and for food.” Sternlicht said. 

He said that besides the real estate industry as a whole, other “victims” of Fed policy include regional banks, who are stuck with a lot of bad debt, and the federal government, with the cost of its massive borrowing now quite high.

This isn't the first time that Sternlicht has been critical of the Federal Reserve for its monetary policy and impact on the office market in particular.

In November, he blasted the Fed for "crushing" CRE, though he noted it was a good time to be a private lender. In January, Sternlicht said the office market was in an "existential crisis" and that the sector was facing as much as $1T in losses.

As for Starwood, Sternlicht was more optimistic on Thursday's call.

“We are in the boat,” he said. “We are navigating these waters. We're going to take some losses, but we're going to be okay. We've set the company up with a massive amount of liquidity.”

Sternlicht also expects the company to take advantage of stresses in the multifamily market, which has edged into overbuilding recently and seen downward pressure on rents.

Multifamily currently represents roughly 40% of the company's lending book. Overbuilding will put the squeeze on that sector through next year at least, Sternlicht said.

“We'd like to get these assets back” Sternlicht said, referring to multifamily loans that the company holds. “We would make more money.”