Cheap borrowing costs may be artificially pumping up property values, but strong real estate fundamentals and the global interest rate environment are mitigating the risks, said Barry Sternlicht, head of the $53 billion investment firm Starwood Capital Group.
"He's right, we've created an asset bubble," Sternlicht said. "But do you really think rates can rise aggressively in the United States, when global interest rates are so low? The dollar will go through the ceiling."
Against that backdrop, Sternlicht also said, "The core fundamentals of the property sector haven't been this good in the United States in 20 years." Starwood Capital specializes in real estate investing.
"Housing formation is good. The housing market is OK. Apartment rents are going up," Sternlicht said, revealing he's purchased about $8 billion of apartments in the past six months.
He cited as strong markets: Nashville, Tennessee; Denver; Seattle; and Southern California.
"Seattle is on fire across every sector, sort of the Austin, Texas, of the Pacific Northwest. That is Amazon driven. And Microsoft is OK," he said. Amazon's headquarters are in Seattle, while Microsoft's are in nearby Redmond, Washington.
"Austin is [also] amazing. Something like 250 people a day are moving to Austin, Texas," he said, adding rents in Oakland, California, rose as much as 8 percent this year because Uber decided to build a new headquarters building there.
"Oakland is hot," Sternlicht said. "It's the Brooklyn of San Francisco," referring to the New Yorkers who fled the high housing costs of Manhattan for the neighboring borough of Brooklyn.
But even expensive New York City and San Francisco are cooling off a bit, Sternlicht said. "San Francisco is turning because of the tech bubble ... deflating."