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My investor friends closer to selling: Sternlicht

The Federal Reserve should start tapering its massive bond-buying immediately, because the program is creating unhealthy asset inflation, real estate mogul and investor Barry Sternlicht told CNBC on Tuesday.

"All my friends who are money managers," he said, "they're much closer to the sell button than they ever were before," especially, since the S&P 500 Index has gained about 24 percent so far this year.

(Read more: S&P up 24 percent in 2013. What's next?)

"If they get nervous, you could see corrections. The volatility will come back instantly," added Sternlicht—chairman and CEO of Starwood Capital Group, which has $29 billion in assets under management.

"If you created a long-term plan for our economy that had some reasonableness ... not fake math, I think the capital markets would zoom," he contended in a "Squawk Box" interview. "I think we'd have a hell of a run here, because there's so much liquidity. There's so much money that wants to be put to work."

Barry Sternlicht, chairman and chief executive officer Starwood Capital Group LLC.
Stephen Chernin | Bloomberg | Getty Images
Barry Sternlicht, chairman and chief executive officer Starwood Capital Group LLC.

While the Fed's $85 billion monthly bond-buying has helped his business, Sternlicht said, "they should knock this off. This is bad. This is a heroin addiction. The more you get on it, the worse it's going to get; the more asset values inflate."

"The Fed is really playing a dangerous game," he added. But as a businessman, he admitted he's doing as many deals as he can while the central bank remains accommodative.

(Read more: Fed's Bullard: $1 trillion a year QE pace 'torrid')

"You have a subsidized interest rate curve. Property yields are sticking higher than they ought to be because everybody expects rates to go up. So you have this moment in time if you deploy capital and lock in debt, your spread is artificially wide—between the yield, let's say, 6 percent, 7 percent on a property and I can borrow at 2.5 percent to 3 percent."

But while helping the wealthy, the near-zero interest rate environment has been hurting savers, Sternlicht said.

"Why don't they [the Fed] increase short rates? If they increase short rates, the long-end probably doesn't go up very much. It actually may stay here because it's weak. But at least it'll give my parents a reason to buy CDs and not invest in stuff they don't understand."

Sternlicht said outgoing Fed Chairman Ben Bernanke didn't taper bond purchases in September, because he knew what was coming with the debt ceiling fight, "and with [Janet] Yellen coming in, let it happen on Yellen's watch not on his watch. Let her taper," he said.

Bernanke will be stepping down as Fed chairman on Jan. 31 at the end of his second four-year term. Last month, President Barack Obama nominated Yellen—the central bank's No. 2—to the top post. She's awaiting her confirmation hearing.

By CNBC's Matthew J. Belvedere. Follow him on Twitter @Matt_SquawkCNBC.