Real Estate and Regional Banking at Risk Amid Fed Rate Hikes, Warn Industry Leaders Sternlicht and Rechler

Barry Sternlicht, the CEO of the $115 billion real estate firm Starwood Capital Group, has expressed concern about the over 4,000 regional and community banks in the US as the real estate industry struggles with higher interest rates, vacancies, and inflation. He predicts that the lenders of choice for these banks may face significant pain. While Sternlicht acknowledged that the US has demonstrated resilience to higher interest rates and inflation by the summer of 2023, he still believes that certain segments of the economy cannot endure Fed Chair Jerome Powell’s quick rate increases, including real estate and regional banking. Sternlicht previously asserted that policymakers were utilizing obsolete inflation statistics, primarily relating to housing, to assault the economy without necessity. As the Federal Reserve raises interest rates to combat inflation, Scott Rechler, the CEO of the New York-based real estate investment, operation, and development company RXR, stated that regional banks are encountering a “slow-moving train wreck.” Banks will confront escalating loan losses owing to the succession of commercial real estate loans approaching maturity while values in the sector decrease, according to Rechler. Sternlicht suggested that cutting interest rates might aid the banks by increasing the value of their assets. This story initially appeared on Fortune.com.