Real Estate Mogul Barry Sternlicht: Migrants are here and they want to work

We sat down with one of the heaviest hitters here at the Milken Global Conference and that is real estate mogul and billionaire investor Barry Sternlict. He was the CEO and chairman of Starwood Capital Group, one of the players in global real estate with 115 billion in assets under management. We started off by asking Sternlict about his world view on the economy and here’s what he said. I do think you’re seeing some weaknesses now that we anticipated like the JP Morgan was saying that the excess spending would be savings will be out to finish in May and you’re now seeing in Starbucks results, McDonald’s warnings some of the things we’re hearing about delinquencies on credit cards. So I do think the 5060% of America has run out of savings and is going to start pinching their pennies. So I think but on the other hand there’s so many you know I we we read that $235 billion of money has gone to people who have cash like you’re earning 5% on your cash that’s $235 billion of spending power people didn’t have. Most Americans mortgages are fixed at 3 1/2% so the rise in rates didn’t change their income. Gas prices are fairly tame as our as our natural gas prices as well as oil. So they’re and they have a job and they in places like Miami where I winter base it’s the unemployment rate’s 1 1/2%. It’s still hard to find labor and actually thank goodness for some of the immigrants because they’ve been taking the jobs that Americans don’t want and probably helped our labor force a little bit in New York. They’re letting migrants work now. So and it’s such a politically charged topic. But the reality is there is a mass and I know it’s a people out there going to come at me when I say it because it’s like, well, they’re undocumented. They’re they’re here illegally that how are they working? Because they’re getting permits to work and there’s a cost, but there is a contribution that these people are making. I mean, look, I don’t think we should have undocumented immigration, but as long as they’re here, we might as well put them to work. And instead of putting them on welfare, give them a job. Right. So. And and taking over hotels in New York City to house them, but give them something that they can contribute back because they’re here. Unless we’re going to deport them and they want to work. That’s above. Yeah, they want to work. That’s above my pay grade. All right. Now we also touched on the Federal Reserve. And whether Barry thinks whether or not rates will come down anytime soon, here’s what he said. I do think rates will come down. I think they’ll come down for two key reasons. Like Powell looks like he’s looking for a reason to bring them down. And he he has to be aware that we have a $34 trillion deficit and he can pay 4% on that or 5%. And just on the debt rolling this year, the delta is over $130 billion. The difference is 1 point, which the US government is going to have on a flywheel of. So he’s aware of that. And the second thing is the regional banking mark system, you know, with a trillion 9 of real estate loans, that’s a fragile animal right now. And one way to get capital into those banks is to lower rates. So it basically makes the assets worth more. And I think also the whole real estate complex, we’re sort of an accidental unintended consequence of his. He was trying to lower inflation, food, energy, which arguably is he going to impact oil imports or home insurance rates or home insurance rates or food supplies from Ukraine which jacked up weak prices. And he’s working with a very different economy where since he started raising rates in May of 22, but healthcare, government, education industries have added three million jobs. So he’s not impacting that at all and that’s almost 50 million of 160 million jobs. So he’s got a hard task with a blunt tool and the the consequences are the real estate markets are taking it on the chin because rates rose so fast. We could have handled this, but we couldn’t handle it this fast. And 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 and not every week, every week, maybe two a week, maybe two a week, maybe two a week. Are there, are there too many banks in America? I mean, yes. But they’re also who makes the loan on the dry cleaner, who makes the loan on the McDonald’s, who helps that small guy open a store. So these are community banks. They’re important to our fabric. And the other thing that’s interesting about jobs and job creation, people are creating digital jobs like our children want to be influencers. They’re they’re working on bringing products. That’s not a dead heavy thing to do. Like, they may borrow money from their friends, but they’re not their dad or their mom. But Barry, Uncle Barry, yeah, it’s like he can’t change that with interest rates. They’re still going to try these jobs. So I think the nature of the labor force has changed so much that I think Powell has had trouble slowing it down with the with rates.