Barry Sternlicht: Office real estate has a $1T loss after the pandemic (NYSE:STWD)

Starwood Capital Group CEO Barry Sternlicht said that the office real estate market is suffering capital losses in the range of $1.2T.

These properties — he said Tuesday at the iConnections Global Alts conference in Miami Beach — are “one asset class that never recovered” after the Covid-19 pandemic.

The office real estate asset class that was previously worth $3T is now worth $1.8T, he claimed. “There is a $1.2T of losses spread somewhere, and nobody knows exactly where it all is.”

Part of his problem, he said, is the office market experiencing “an existential crisis” due to workers not returning to the office.

As interest rates increased since March 2022, property owners struggled to refinance loans while building values declined.

And while regional banks were previously a source of funds for real estate owners, they have now disappeared from the market, Sternlicht said. “So, the alternatives are the debt funds, which are having a field day.”