Investors are at risk of becoming too complacent because there are so few places to find yield, said Barry Sternlicht, chairman and CEO of Starwood Capital Group.
"Certainly asset bubbles [are] developing. Investors should be wary. They should watch out for tail risk," he said Tuesday on CNBC's "Squawk Box."
"Since there's no yield … in corporates or governments—everything whether it's farmland, timber—everything is yield proxies," said Sternlicht, adding junk bonds are at all-time lows and real estate debt spreads are crashing.
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With $36 billion in client money, Starwood Capital is a private investment firm, focusing primarily on real estate.
"We represent many sovereign wealth funds that invest with us, and they're anxious to put that cash to work in something, anything," Sternlicht said. "Real estate is a beneficiary of that, as is the stock market."
"They are taking money out of the debt markets," he added.
But those trades may be getting crowded, he warned. "I think everyone is levered long to a rising economy. I don't think [interest] rates are going anywhere globally. The world's economies are not strong enough."
—By CNBC's Matthew J. Belvedere