Starwood Hotels CEO Barry Sternlicht says few people really understand the potential for growth in the U.S. commercial property market.
Despite tight credit, Sternlicht says, Starwood is in the market to buy.
“When you have a lot of forced sellers, there are always good opportunities,” he told Bloomberg TV in Davos, Switzerland.
In developing countries, for instance, almost all decent commercial property is by definition new construction, which can be costly.
Not so in the United States. “The U.S. is unique in the world right now because you can buy commercial property at deep discount on replacement costs.”
That is, it’s easier and cheaper to buy an existing building than to secure financing to build a new one.
As credit tightened, sales of U.S. commercial property likely fell 70 percent in 2008 and are expected to slide another 20 to 25 percent in 2009, Reuters reports.
The decline was most precipitous in the last part of 2008, as the commercial mortgage-backed securities market, the key source of funding for the real estate boom of the prior five years, virtually closed.
Sternlicht sees a struggle for new credit as the major obstacle to growth in the sector.
“If the banks had confidence … they would be willing to make loans,” Sternlicht says. “The cost of capital is so high for the banks they can’t make competitive loans.”
He warns that inaction could lead to a larger crisis.
Sternlicht wants government to guarantee the triple-A pieces of commercial mortgage-backed securities. Doing this wouldn’t cost much, he says, while not doing it might cost billions, even $1 trillion.
“Right now we’re holding on because of low interest rates,” Sternlicht.
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