Commercial real estate is being battered by a 'hurricane' as higher interest rates bite, billionaire investor Barry Sternlicht says

• Commercial real estate is in a "Category 5 hurricane" from rate hikes, Barry Sternlicht said.
• "It's sort of a blackout hovering over the entire industry," the billionaire investor told Bloomberg.

The commercial real estate industry is in a "Category 5 hurricane" from the the Federal Reserve's interest rate hikes, according to billionaire investor Barry Sternlicht.

"We're in a Category 5 hurricane," the Starwood Capital Group CEO said during an episode of "Bloomberg Wealth with David Rubenstein."

"It's sort of a blackout hovering over the entire industry until we get some relief or some understanding of what the Fed's going to do over the longer term," he added, referring to the commercial real estate industry.

Sternlicht has long criticized the Fed's aggressive interest rate hikes over the past year, warning they could trigger a hard landing for the US economy.

The central bank has increased benchmark borrowing costs by 500 basis points since early 2022 in a bid to tame soaring inflation.

After months of tight monetary policy, the Fed paused its interest-rate hiking cycle in June amid rising fears about the commercial real estate and banking sectors.

"But there's no question that the Fed has reacted dramatically to try to slow the economy down — quite late, obviously — and that has impacted real estate values," Sternlicht said.

A combination of higher interest rates, a credit squeeze, and remote work trends are squeezing the commercial real estate industry. Sternlicht himself has been ensnared after his company defaulted on a $200 million mortgage backed by an Atlanta office tower.

Still, he remains optimistic: "When the Fed basically tells you they're done, I think real estate will catch a very firm bid."