One of the world’s most successful and respected real estate investors is sounding alarm bells of the hurricane brewing in the real estate market. Barry Sternlicht is a billionaire and the co-founder, Chairman, and CEO of Starwood Capital Group, an investment fund with over $120 billion in assets under management. Starwood is one of the largest real estate firms in the world and Sternlicht’s position as CEO gives him an inside look into what’s happening in the real estate market. That is why it got my attention when in a recent interview he talked about a quote “category five” hurricane that’s months away from hitting the real estate market.
To truly understand what is going on in the real estate market, you first need to understand the relationship between real estate values and interest rates. Real estate is an asset that has what is referred to as a fixed income stream. A fixed income stream is a relatively predictable amount of cash year in and year out. If you are an owner of an office building and your tenant has a 10 year lease, you know what you should be getting paid in rent over the next 10 years. These locked in cash flows are the fixed income stream real estate produces. Here is what Sternlicht meant when he said any asset with a fixed income stream decreases in value as interest rates rise.
Real estate is what economists refer to as a commodity. The price of any commodity is dependent on the supply and demand dynamics at that given time. We know from earlier that the value of the building is dependent on the cash it generates. However, what determines what rent you as the owner can charge for each of those units? It’s the supply and demand of apartments within that particular real estate market.
For owners of the apartment building, so-called “strong fundamentals” is when demand outstrips supply. Over the past few years, the economy has been extremely strong. Unemployment was low and government stimulus programs were high. Add to that the fact that home prices skyrocketed, forcing many would be home buyers to stay renters. These factors caused demand for apartment units to increase, pushing our demand line here out to the right. Notice how the supply and demand line now cross at a much higher price. The higher rents increased the cash apartment buildings generated, making them even more valuable.
*Disclaimer: Neither this video, not any content produced on this channel should ever be considered investing advice or official financial advice. All content is made for entertainment and educational purposes.
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Yet here we are in April 2025
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Most.
Americans are being forced to rent.
This aged like fine milk
Well this video didn’t age well
It's 2024 now. How many people made it? Reply here 🙌
Recently bought some recommended stocks and now they are just penny stocks. There seems to be more negative portfolios in the last 3rd half of 2023 with markets tumbling, soaring inflation, and banks going out of business. My concern is how can the rapid interest-rate hike be of favor to a value investor, or is it better avoiding stocks for a while?
After giant investment corporations came in and bought 1 in 5 properties, paying cash, I believe the market is going to be stagnant until interest rates drop. There isn’t going to be a market crash because corporations will be holding these investment properties 10-15 years to realize a decent gain when it’s time to roll over their inventory. There may be some who bought more home than they could actually afford and will lose their homes but certainly not enough to damage the overall market. Real estate has never equaled the stock market for gains over time. Everyone paying attention bought #NVDA last year and are sitting on large gains. It’s still not too late to buy even now. Quarterly earnings later this month are going to be insane and it will jump yet again. Just do some research and stop trying to use real estate as an investment.
Because so many people overpaid for homes even while loan rates were low, I believe there will be a housing catastrophe because these people are in debt. If housing costs continue to drop and, for whatever reason, they can no longer afford the property and it goes into foreclosure, they have no equity since, even if they try to sell, they will not make any money. I believe that many individuals will experience this, especially given the impending mass layoffs and rapidly rising living expenses.
Year by year since 2022 so far. An entire generation has been not able to get a home. Saving and saving their money up. Whenever the “crash” happens for the housing market. There will just be another bidding war for homes between this generation.
I've been waiting 2 years for the real estate crash which never gets here.
Its now 3 months into 2024….wrong again
People won't make it to 2023
Obnoxious voice over.
Great. Because the real estate market needs a hurricane to correct so much price gouging as well as county taxing authorities. All out of line and the reason this market is and has imploded. AS IT SHOULD AND NEEDS TO.
Purging is what it takes to clean it up correcting pricing and values. Just like the 1980s.
Grab your platform shoes and get ready for the disco days again.
He's one of the smartest in the industry. The "Boys" with all their lobbying will eventually secure some form of bailout from the administration, easy scare tactics for politicians. The category 5 hurricane that is brewing in commercial real estate has nothing to do with "work from home" dynamics. It has to do with AI. Complex cognitive algorithmic reasoning is going to dramatically transform our workforce and will certainly affect white-collar jobs disproportionately. This will be the second shoe to drop, dramatically affecting commercial real estate. So many well-seasoned RE pros have no understanding of what's quietly unfolding with this technology. AI-centric processing software and its rapid development will change the white-collar landscape. Class "A", experiential "knockout" space will always have a place and is the safe haven for sure. What percentage of the market is that? Wanna Guess? Be strategic and think outside your wheelhouse.
Insurance and Taxes alone, are ruining seniors in many states including Florida, especially.
I see now as to why apartments and rentals keep raising rent prices. I imagine the crash will look like the streets of homeless cities x1000
I sure hope you are wrong Barry !!!!
Im rich blah blah blah listen to me I'm rich blah blah blah my head is shiny blah blah blah I don't make predictions i get together with other billionaires and control the market blah blah blah.
Most useless wealthy human being on the planet telling us we aren't going to make it.
Well this thumbnail didn’t age well…
So.. property isn’t an asset 🤷🏻
The greedy get greedier.
Apartments are the new American dream.
Not subscribing…your voice /cadence is annoying.
Even the rich are being taxed to death.
And that is another day of saving the beeees , is the bees lady doing a voice over here?
Now this aged poorly
I am getting so extremely EFFING fed up with all those crappy spam messages where people are recommending fake financial advisors. When the F are the YouTube people going to do something about it? It´s really annoying as F!!!!