Low Rates Pushing Investors Into Commercial Real Estate: Sternlicht
By: Short interest rates in the United States and around the world have created a flow of funds into commercial real estate that's not necessarily natural, Barry Sternlicht, chairman and CEO of Starwood Capital Group, told CNBC on Thursday.
"You see it in the debt markets. People, I think, don't understand the risks they're taking. If spreads come in the debt markets and debt is available, prices will go up, and prices are going up, and there's a lot of buyers of core real estate at yields that only probably look really good relative to where Treasurys are," Sternlicht said.
"The shape of the economy in the U.S.—job creation, demand for space—is probably going to be slow, 1 percent, 2 percent GDP growth, its not going to be, partially outside of the New York and Washington markets, rapid increases," he said.
In a relative short time, commercial real estate seems to have recovered fast, from what many were speculating would be a siginificant depression.
"We had all this money that went to cash, right after the crisis, then went to debt, first Treasurys, then it started to go to the high-yield market, which has rallied, now it's coming to the property market," Sternlicht said.
In addition, Sternlicht said, "there is so much money trying to get into the major markets right now in the U.S., foreign money," he said.
"They are underrepresented, they're looking for diversification, they're looking for opportunities to put money to work and not by Treasurys—this is sovereign wealth funds that have enough Treasurys—and they think a 4 [percent] yield on an office building is better than a 1.8, 1.9 on a five-year [bond]," Sternlicht said.
"It's a long-term inflation hedge and they get a current yield, it's not fantastic but it's better than Treasury," he said.
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