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Barry Sternlicht, the CEO of Starwood Capital Group, expressed his concern about the U.S. real estate market and its potential impact on regional banks. Sternlicht predicts that the struggling real estate industry could result in a bank failure every week.
What Happened: Sternlicht, a billionaire real estate investor, is apprehensive about the future of the more than 4,000 regional and community banks in the U.S. due to challenges such as higher interest rates, vacancies, and inflation, reported Fortune on Wednesday. He believes these factors could lead to a significant number of bank failures.
"I think people are looking for these cracks and you're going to see the cracks develop now. You're going to see a regional bank fail every day, or notevery week, maybe two a week," hetold CNBCon Tuesday.
Despite Sternlichts prediction, only one U.S. bank has failed this year. Republic First Bank, a regional lender operating in Philadelphia, New York, and New Jersey, faced issues with rising interest rates and had its $6 billion in assets and $4 billion in deposits seized by the Federal Deposit Insurance Corporation.
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Sternlicht has been warning about potential problems due to rising interest rates in the real estate and banking sectors for over two years. He previously criticized the Federal Reserves use of old inflation data to address the economy and warned of an impending recession due to soaring borrowing costs.
Despite the U.S. economys resilience to higher interest rates and inflation by mid-2023, Sternlicht still believes that certain segments, including real estate and regional banking, cannot withstand Federal Reserve Chair Jerome Powells rapid rate hikes.
Why It Matters: Sternlichts warnings echo those of other industry leaders. In March, Fed Chair Powell also cautioned about potential issues at regional banks due to underwater real estate loans.
Similarly, in September, Kevin OLeary warned that a commercial real estate collapse could lead to the failure of several banks.
These warnings come amid a global real estate crisis, with Hayman Capital hedge fund manager Kyle Bass warning that Chinas real estate collapse could outpace the U.S. financial crisis. The potential failure of U.S. regional banks could have significant implications for the global economy.
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