Starwood Capital Group CEO Barry Sternlicht Talks Property Market Outlook

Summary

Bloomberg Talks

Episode Summary: Starwood Capital Group CEO Barry Sternlicht Talks Property Market Outlook

Date: May 5, 2026
Guest: Barry Sternlicht, CEO and Chairman, Starwood Capital Group
Host: Bloomberg (Interviewer)

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Main Theme

Barry Sternlicht joins Bloomberg at the Milken Conference to share his outlook on the global property market, emphasizing Starwood Capital’s strategic pivot into AI data centers, global logistics infrastructure, and real estate investments across the US, Europe, and Asia-Pacific. The conversation covers Sternlicht’s rationale for recent high-profile deals, market dynamics across regions, and his perspective on macroeconomic trends, particularly interest rates and their effects on real estate.

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Key Discussion Points and Insights

1. Starwood’s Diversification into Data Centers and Technology Infrastructure

• Recent Focus: Over the past five years, Starwood has actively invested in data centers, starting in Dulles, Virginia—"the largest data center market in the world"—and expanding globally.
• Quote:

  "Dulles was the home of the Internet. And then so there's great connectivity and it sort of grounds. It's like Park Avenue in 57th Street."
  — Barry Sternlicht [01:05]

• Strategies:
  • Deals with bitcoin miners and infrastructure projects.
  • Expansion into Europe (Ireland, Spain, Milan), and Asia-Pacific (Japan, Korea, Australia).

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2. The ESR Deal: Asia-Pacific Industrial and Data Center Expansion

• Rationale: ESR’s logistics and data center assets offered complementary exposure for Starwood, which is traditionally weighted toward Europe and the US.
• Quote:

  "They're leaders in logistics... a huge footprint in Australia, which [is a] super healthy market... Japan...done great with their abandonment of the yen."
  — Barry Sternlicht [02:29]

• Key Attributes:
  • ESR operates in South Korea, Japan, India, and Australia.
  • Largest privatization in Asia last year; consortium includes sovereign wealth funds.
  • ESR’s China logistics valued "well below book" due to current market weakness.
• Quote:

  "It's going really well. I actually, I've rarely done a consortium deal... But we've all agreed on the business plan up front and we're executing."
  — Barry Sternlicht [04:40]

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3. Australian Market and Telstra Partnership

• Current Moves: Emphasis on developing data centers in Australia due to market attractiveness and the absence of significant "data sovereignty issues".
• Quote:

  "The interest rates are about the same in Australia as they are here. And the yields on costs for us developing are about the same... equipment problems everywhere."
  — Barry Sternlicht [06:01]

• Perspective:
  • Market economics are similar to the US.
  • Focused on major cities—Melbourne, Sydney.
  • Joint ventures with local partners, e.g., Leicester.

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4. European Footprint and Investment Philosophy

• New Acquisitions: Starwood is expanding in Europe by taking small public companies private, with recent investments in a Swedish homebuilder and industrial assets in Northern Italy and Berlin.
• Quote:

  "We like to invest with positive leverage, when the yields on property are higher than the cost of debt. And that turned true in Europe a lot faster than the United States."
  — Barry Sternlicht [06:36]

• Market Dynamics:
  • Europe offers higher yields, lower vacancy rates, growing rents.
  • Focused more on "the continent" (continental Europe) than the UK due to higher rates and weak economy.
  • Cautiously optimistic about European economic outlook.

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5. US Market Outlook: Waiting for Rate Cuts

• Interest Rate Sensitivity: Sternlicht is delaying US expansions pending lower interest rates, specifically referencing anticipated policy moves by Fed official Kevin Warsh.
• Quote:

  "We're just waiting for Kevin Warsh to bring rates down for us."
  — Barry Sternlicht [08:10]

• Macroeconomic Commentary:
  • US consumer not as strong as GDP suggests; "Half of this country is sort of not doing so great."
  • Impact of energy prices: Oil spikes weaken the economy, providing rationale for lower rates.
  • Changing travel patterns: "Americans aren't going to Europe this summer," with travel down 10% [09:18].

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6. US Regional Strategy and Political Dynamics

• Geographic Focus: Avoiding investments in "blue states" due to taxation policies; preferring growth markets in the Sunbelt (Nashville, Dallas, Atlanta, Raleigh, Florida).
• Quote:

  "As investors, we've shied away from blue states, rightly lately because of their propensity to tax businesses and individuals... that's showing up in higher growth rates in the Sunbelt states."
  — Barry Sternlicht [09:30]

• Concerns:
  • Widening wealth disparity, influence on politics and real estate.
  • Short-term oversupply in fast-growth regions should balance out with job growth over a 5–10 year horizon.

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Notable Quotes & Memorable Moments

• On international expansion:

  "We have the largest data center operator in Ireland... joint venture with Spanish utility Iberdella... moved into Australia and really in Japan and Korea."
  — Barry Sternlicht [01:36]

• On new investment strategies:

  "We've been very constructive on take privates of small public companies in Europe... continue to comb through the public markets looking for things to take private."
  — Barry Sternlicht [07:31]

• On US economic challenges:

  "Half of this country is sort of not doing so great. And they're facing higher everything prices, purely gas now... if the US is a consumption economy, you would expect consumption to get weaker."
  — Barry Sternlicht [09:18]

• On Sunbelt versus blue states:

  "Five years or ten years from now they won't be outperforming the Nashville's, the Dallas's, the Atlanta's, the Raleigh, pretty much the entire state of Florida."
  — Barry Sternlicht [09:58]

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Important Timestamps

| Timestamp | Topic Discussed | |---------------|------------------------------------------------------------------------------------------------| | 01:02 | Starwood entry into data centers — Dulles market, global expansion | | 02:18 | Rationale behind the ESR deal and Asia-Pacific strategy | | 03:30 | Details on taking ESR private, investor consortium, growth plans | | 05:02 | Australian market focus, economics, and the Telstra partnership | | 06:31 | Expansion in Europe: Swedish homebuilder, Northern Italy industrial, Berlin office rents | | 08:10 | US outlook: Waiting for rate cuts, macroeconomic environment | | 09:18 | US consumer outlook, travel trends, and structural concerns | | 09:30 | Wealth disparity in the US, real estate impacts, Sunbelt vs blue state investment strategies |

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Summary

Barry Sternlicht’s conversation provides a deep dive into the evolution of global real estate investment, with Starwood pivoting strongly into AI data centers and logistics assets, especially in Europe and Asia-Pacific. He underscores the importance of aligning strategy with global economic shifts—like interest rates, consumer health, and geopolitics—while pointing out persistent regional differences within the US, especially regarding taxation and demographic trends. Sternlicht’s candid takes on market valuations, trends, and the future of property investment highlight Starwood’s adaptive approach amid rapidly changing global conditions.

Transcript

[Barry Sternlicht]

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[Narrator/Announcer]

Bloomberg Audio Studios Podcasts Radio News.

[Interviewer]

I'm here with Barry Sternlich here at the Milken Conference in Beverly Hills, the CEO and chairman of Starwood, who of made his name turning around hotels. You created the W, you got acquired the Sheridan. You did a lot more, but you

[Barry Sternlicht]

made a little the west.

[Interviewer]

And we can go on and on. You were like the hotel guy for a long time. And I guess you still.

[Barry Sternlicht]

Before I was a hotel guy. Okay, now back to being a real estate guy and a hotel guy. All right, let's start hotels again.

[Interviewer]

You start hotels again. But you've brought out, I mean, you. I mean, I'm looking at some of your investments lately. You're doing a lot right now in the sort of AI data center infrastructure business that's become a huge component of your business, isn't it?

[Barry Sternlicht]

It has recently. I mean, FL last five years we've been doing data centers. Yeah. And then we started really in the Dulles market, the largest data center market in the world. Eight and a half gigawatts in place. And it's. Dulles was the home of the Internet. And then so there's great connectivity and it sort of grounds. It's like Park Avenue in 57th Street. And then we brought it out to other markets. We did a deal with a bitcoin miner. Yeah.

[Interviewer]

And holdings.

[Barry Sternlicht]

Right, holdings. And, and we're looking at others. And then we're expanding other states and we've. With two platforms we've launched into Europe and into as.

[Interviewer]

Yeah.

[Barry Sternlicht]

Both directly and indirectly. In Europe we have the largest data center operator. We own the majority interest in largest data center operator in Ireland, which has expanded a joint venture with the Spanish utility Iberdella. And then we've also got sites in Milan and then in Asia. We bought together with Warburg, controlling interest in esr, which is Asia's largest real estate asset manager. Private last year. And they have a big data center business. And then on our own, we partner with them with esr, but also have moved into Australia and really in Japan and Korea also. And we've been in and out of Malaysia. We haven't bitten the dust yet, but I don't fight the dust. I think it's the right word. Bitten the bone. The bone.

[Interviewer]

We'll talk about esr because the USR is Pretty expensive. I mean that's, that includes South Korea, Japan, India. I'm probably forgetting a couple of nations in there. That gives you a pretty broad foot footprint there. Why did you lead that deal?

[Barry Sternlicht]

We like their footprint in the new world. They're leaders in logistics. The largest or second largest neck and neck on logistics with a huge footprint in Australia, which super healthy market. We did a large investment into Sydney and Melbourne Industrial a year and a half ago. And also we like Japan, you know, it's, it's done great with their abandonment of the yen and the fact that they've become so competitive while letting the currency go. So ESR has had a really good footprint in really the fast growing countries and we think Korea was distressed coming out of that. And they had a. They do, they're great developers. They've done some great development deals all across Asia, including India. And they're about 100 and they were 150 billion. We're shrink them down to about 120 billion of AUM assets under management. We're about 130 and we're long as a firm. More Europe in the US and they're long Asia. So it was complementary to what we were doing.

[Interviewer]

Yeah.

[Barry Sternlicht]

And you know, we're working with a group of investors. We took it private. It was I think the largest privatization in Asia last year was.

[Interviewer]

Yeah.

[Barry Sternlicht]

So I think.

[Interviewer]

Would you have done that? I mean you mentioned Japan and obviously the big changes that we've seen in the yen and fiscal policy over there. Would you have done a deal with that with such close ties to Japan? I don't know. Five years ago, 10 years ago like this.

[Barry Sternlicht]

I think those two asset classes have caught the favor with investors and a lot of their clients are sovereign wealth to invest with us. So we could due diligence how they felt about ESR as a manager. And ESR was a sort of a funny company. It was listed on the Hong Kong Stock Exchange but didn't really pay a dividend. Most asset managers just pay dividends and they grew at hyperspeed. And so the markets were. Then they had a lot of exposure to China. We think we value that, that market appropriately. But they're a big logistics player in China. It's one of the probably the weakest logistics market in the world that I'm aware of. And what I think we valued well below book and we bought the company, I think attractively. We put together a consortium that includes some of the original shareholders. Just rolled over into our privatization.

[Interviewer]

Mm.

[Barry Sternlicht]

And then we put, you know, a really Good group, including some of those sovereign wealth funds, joined us in the take private. So it's going really well. I actually, I've rarely done a consortium deal. We usually were doing deals by ourselves, maybe one partner, but there are five of us invested. But we've all agreed on the business plan up front and we're executing. Our team's good and focused and I hope we can grow it dramatically and then re IPO it.

[Interviewer]

What about the Telstra deal in Australia? I mean, how, how important is that market for you right now?

[Barry Sternlicht]

Now Australia is a good market. There's a trunk lines in the US so. And there's no data sovereignty issues. I think both in Europe and Australia and to some extent all of Asia. We've seen the hyperscalers who are really focused on the US in the last six months. They seem to be really focused on moving out and not abandoning the US but they're much more active in Europe, they're much more active in Asia. And we're working right now on our first real data center deal on our own in Australia.

[Interviewer]

The economics and the valuations of. Little more attractive there relative to say, what we're seeing here in the U.S. no, no.

[Barry Sternlicht]

Pretty much the same.

[Interviewer]

Yeah. More upside maybe. I mean, why chase that? Why not just continue, you know, roaming around the US you can get power

[Barry Sternlicht]

anywhere in the world. You have something you can talk to a hyperscaler about. So we're just agnostic. Yeah. You know, the interest rates are about the same Australia as they are here.

[Interviewer]

Yeah.

[Barry Sternlicht]

And. And the yields on costs for us developing are about the same and the equipment costs the same thing. And we have equipment problems everywhere. It's not just the U.S. you got to order your turbines and your chillers and your other equipment and labor seems to be okay. It's not. It's really Melbourne in Sydney pretty much. It's not. It's not across the country. And our partnership with Leicester is a great help. And they've got sites and we're working on one of them. Hopefully we'll get it done very shortly.

[Interviewer]

What about your footprint in Europe? Because that's been expanding too. In fact, it seems like you're putting a little bit more emphasis on that

[Barry Sternlicht]

than guys like us. We like to invest when. With positive leverage, when the yields on property are higher than the cost of debt. And that turned true in Europe a lot faster than the United States. So we just took private. We bought a Swedish homebuilder. We thought that market was interesting. It's undersupplied. We Were we have a huge owner of industrial in northern Italy which is like that's a good part of Italy from an investment standpoint in the south is not so hot. But that enjoys like a 2% vacancy rate. We're seeing growing rents and we're getting inbound interest to buy this stuff. We've been very constructive on take privates of small public companies in Europe. There are a lot of small rates in Europe that can't get to scale and they were quicker to actually let's say clean the books or shareholders got stuck in one of the cell companies. So we continue to comb through the public markets looking for things to take private. There's a couple of companies working on right now and, and I think really more on the continent in the UK because rates in the economy rates are higher and economy stayed stubbornly weak. I not really worried about the European economy going into a deep recession. It's essentially we have a footprint in Germany with a very large developer and everything they, they touch everything they open for lease immediately. Pre leases.

[Interviewer]

Yeah.

[Barry Sternlicht]

So we just achieved the highest rents we think ever in Berlin on an office dealer building. So it's a, you know, I think those are, those markets are inherently better than the markets in the United States in the sense that the, the vacancy rates are much lower.

[Interviewer]

Have you given up on the United States? Not at all. No, not at all.

[Barry Sternlicht]

We're just waiting for Kevin Warsh to bring rates down for us.

[Interviewer]

You think Kevin Wash is going to do that? You don't want to rephrase that. You think he's going to have a reason to lower rates? Rates.

[Barry Sternlicht]

I'd argue if oil spikes he should lower rates because that seems counterintuitive because interest rates aren't going to affect oil prices. Right. But on the other hand oil prices attacks on the US and the global economy weakening the economy. So he should lower rates and help the interest rate sensitive parts of the economy like housing to balance the economy and keep it going.

[Interviewer]

How much room does he even have to do that? I mean a quarter point I think

[Barry Sternlicht]

the short end could be three. Oh yeah, it was three before the war. I mean the forward curve was. It was one. No, I mean like six months ago it was then in the fall it was 3. The forward curve and I think the US economy is sort of a weird economy. It's. We talk about this GDP growth and exceptionalism. That's true from the perspective, from the consumer's perspective. He's not doing so great. Half of this country is sort of not doing so Great. And they're facing higher everything prices purely gas now. So if the US is a consumption economy, you would expect consumption to get weaker.

[Interviewer]

Yeah.

[Barry Sternlicht]

And we'll see if it happens. You're seeing changes in travel patterns. Americans aren't going to Europe this summer.

[Interviewer]

Yeah.

[Barry Sternlicht]

Travel to Europe sound like 10%. Does that worry you though?

[Interviewer]

I mean that, that some of these changes aren't just temporary, that they could be long term, structural.

[Barry Sternlicht]

No, I don't. What worries me is. Yes. The disparity of wealth in the United States and the fact that half the country isn't doing so great. That worries me that because it will impact politics. And if it's politics, it'll impact real estate, it'll impact taxes, it'll impact a lot of things. So I think as investors, you know, we've shied away from blue states, rightly lately because of their propensity to tax businesses and individuals. And that's showing up in higher growth rates in the, in the Sunbelt states, which are oversupplied United States. Yeah, but that's where the job growth is. And eventually they will grow into their supply. There's not a lot of new supply where some of the blue states are losing jobs and they don't have a lot of supply. But they won't five years or ten years from now they won't be outperforming the Nashville's, the Dallas is, the Atlanta's, the Raleigh, pretty much the entire state of Florida.

[Interviewer]

All right, Barry, really appreciate it. We have to leave it there. Barry Stern, look there. The chairman and CEO of Starwood Capital.

[Narrator/Announcer]

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