Barry Sternlicht says he will drop employees in favor of AI
A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and evolving opportunities for the real estate investor, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. Sign up to receive future editions, straight to your inbox.
Billionaire Barry Sternlicht, chairman and CEO of Starwood Capital Group, is a legendary, legacy real estate investor. Brendan Wallace is an entrepreneur who co-founded Fifth Wall, a venture capital firm investing in property technology and decarbonizing real estate. The pair first met in the gym. Now, Wallace can say Sternlicht is a mentor – as well as a Fifth Wall investor – and Sternlicht jokes that Wallace is his trainer.
Together they gave CNBC Property Play a rare glimpse into how old-school commercial real estate investing is pivoting to a new tech-driven world order and how that new world order still relies on lessons learned in the past.
Here are some of the highlights from the conversation, edited for clarity and length:
On CRE investing
Sternlicht: We endured a 500 basis point, fairly rapid increase in rates, and most people who were invested had to pay some price for that, whether the yields on property went up or they weren’t properly hedged. Your costs went up, your expenses, and they drained a lot of cash flow from assets that might have gone into fixing the assets up. That’s behind us now, and there’s no doubt that interest rates are going down. … In May of next year, Jerome [Powell] will be out [as Federal Reserve Chairman], and nobody’s getting that job without agreeing to lower rates.
I think they should lower rates. I think inflation that we’re seeing is tariff related. It will continue. It’ll get worse, probably, in the fourth quarter, when the new inventories hit the shelves and the tariffs can no longer be ignored.
Wallace: The rate increases that Barry was mentioning, those impacted prop tech definitionally, because all tech companies, all loss-making businesses, rerated all at the same time. And at the same time, the demand from commercial real estate stopped.
I would say an overlay on top of it was also that a big part of where real estate companies were investing in the last four years was around decarbonization efforts, so trying to conform to new carbon neutrality laws … and anticipating this kind of wave of decarbonization. And I feel like with [President Donald] Trump‘s election, it kind of felt like they got a hall pass, certainly for four years.
On AI and data centers
Sternlicht: We’ve probably got $20 billion dedicated to [the data center] space. I think it’s a different issue than you think. Most of us don’t build until we get…
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