In this episode of The FORT podcast, Chris Powers sits down with Barry Sternlicht, the visionary Chairman & CEO of Starwood Capital Group and Starwood Property Trust.
With over three decades of experience and a portfolio encompassing 290,000 residential units, 4,000 hotels, and millions of square feet in office, industrial, and retail space, Barry is a titan in the global real estate scene.
He and Chris Powers delve into an array of topics, including the rapid scaling of Starwood Capital, insights on the “A Shared Pair” REIT, strategies for asset management growth, the sale of Caesars Palace, and Barry’s perspective on the 2024 commercial real estate market.
Barry Sternlicht: With AI coming, many things will change for hotels, but the industry is growing. People will travel; there’s still a billion, four Chinese and Indians and a billion, three Chinese, and they haven’t hit the road yet, but they’re going to. They may not come to Evanston, Illinois, but they’re going to go to Venice and Rome, and they’re going to visit the Eiffel Tower in Paris and, and it’s, you know, we have a centric view, but travels are going to be, it is going to be a growth industry. It’s a giant industry. It’s going to keep growing, and it will be.
How you find a hotel and its design will change with AI, but this actual stay will still occur. You’ll still go on vacation, and you’ll still want to see extraordinary things. Consumer demands are rising. They want more out of everything. The simple truth is that I almost feel bad for the old fleets of hotels.
Like, how do I convert this old? Bagel commodity products in all of the real estate, you know, when you see in the office markets, the commodity office is not complete, the building you’re sitting in, we built in the Middle of the pandemic, at least a hundred per cent of it ourselves. And it’s a hundred percent less at twice the rents during the pandemic.
I thought it was because it’s not a commodity. It’s the most excellent building in the market. And in this particular market, I knew there were many people who, down here, wanted small offices, family offices. So if you raise blind people behind me, there are like 15 family offices in that building, and they were not that price sensitive to rent because they just wanted 5,000 feet.
So, they paid reasonable rent, and they value the community. And, on the other hand, our firm was going to buy it site unseen. We won the RFP to build a building further down in Miami Beach. And this market is a small tenant market because only some schools are on the beach.
So, it is a small tenant market. And if you built a building for small tenants, you fill it. But medical supplies things. So, usually, it’s a genuine estate, block by block. And know who your targeted audience is in any product and then don’t. I deviate from my job in one hotel half the time as a police officer like the GMs are ordering stuff.
That’s not green. Where did you get that from? Like, the floor is like vinyl. Like, take that out right now. It has to be wood. And I got there. I don’t realize I noticed, and people see. And sometimes, when I go to hotels, they know I like newspapers because I wouldn’t say I enjoy reading my papers on my iPad.
So they’ll, but I don’t want to bring any paper; we don’t have any paper in the hotel. So don’t just don’t cheat for me. Like, and then sometimes maybe I’ll do Laundry, and they bring it back in a cardboard box. No, Laundry is supposed to go in a wicker basket with a raffia tie and be reused.
It’s not supposed to have cardboard. So you’ve got to be, I call it, the style police. You must have vigilantes to hold your product in its category, right? You’ll have to be focused on being consistent always; you can change the colour. You can, but you, you, you, and you have to, cause you can be bored, but you must stay in your lane and own that customer.
And if there’s another customer. If you like me, you may have to build a different product for them. You’ve got to stay here. What’s interesting about one is that my partner was a very wealthy individual who owned a piece of the property across the street, the one in South Beach. He’s like, who is this guy?
Who’s this customer? We need to focus groups. And here’s the focus group of my life. And I reminded him, I said, I got this. I know what’s going to happen. And we span all ages. We can fill the hotel with transients or with groups, and we have. It’s an incredibly successful hotel, as most hotels have been.
We’re now the number one hotel in Nashville; we’ve been open a year, and we’ve been the number one hotel, beating two, four seasons in San Francisco.
We’ve been open for six months; maybe I can’t even believe the rates in San Francisco. That’s a ghost town, but our hotels and the rates are excellent. So, in Toronto, we renovated an old Thompson hotel.
And it’s fascinating. New York City. Central Park South is a superb hotel. So, yeah, I think that’s it for me is my, it’s me expressing creativity a little bit, but it’s creativity with a reason, you know, I do it for the P& L. The first W Hotel was, times, the one on 48th and Lex. In New York, we spent 67 million buying the building, 100 million to fix it up, and made 32 million our first year.
So 32 over 1 60 is a 20 percent return on cost, unleveled. It’s like the best hotel that I’ve ever seen in my life. And I had an analyst from potential securities, who I’ll never forget, at the opening of that hotel back in 1998. He said, what are you doing? It doesn’t work. I’m like, it’ll work.
I was too young to know it wouldn’t work. But when we built San Francisco, the W in San Francisco across the Moscone Centre was 87,000,822 in its first year. I wasn’t chirping about it because I didn’t want the big kahunas, the merits, the Hilton and the Hyatt’s and the inner cons to know.
But I knew I was onto something, and then I kept replicating it. It’s funny that some of the future ones that we own, I think the first 10, we held at Starboard Hotels, the company I found. But, there were some markets where I said, Oh, I don’t have to be there like San Diego. And, like, we should have put the money up.
We let someone else do it. And we still decided to manage it. It was a home run. Like I was like, they did so well. I wish I owned all of them, but, you know, they all are, but they need to be. Like any product, it needs to be refreshed. I was recently in the W in Barcelona, where I helped design, but I left the company before it was finished.
And it’s in a fantastic location, right on the Mediterranean; they’re an iconic building, but super tired. Like, I wouldn’t stay there because it’s now, it’s not relevant to design, it’s black and magenta, and it isn’t very kind. It’s trying so hard to be excellent. It’s not cool. You can’t try that hard to be perfect.
You have to say it. You’re not fabulous. So, you know, One hotel is more accessible in some ways. We’re supposed to be a nature store and teach people they can live. It’s One hotel because it’s one world; we’re all responsible for each other. And so when they burn coal in China, they carry it in the air and pollute California, create rain, and impact the Rocky Mountains.
So we’re one, we’re one world, and that’s why it’s called One Hotels.
Chris Powers: I love it. I want to go back because you do much more besides hotels. And I’m at a similar place to where you were, where I will start the story in my career. But I first want to begin with, did you know as a young person that everything you touched would be huge?
You have one of the largest real estate companies. We’re talking about one hotel. You rattle off 35 global hotels like it’s nothing. Your story, which I’ve studied a lot, is big after big. Was that something you thought about early on?
Barry Sternlicht: I had no idea what would become of my life.
And I sometimes wonder about what kept me going and why I started as a recap of a couple hundred million dollar bankrupt REIT on the New York Stock Exchange when we were running Starwood Lodging. And then we just kept going, and we could raise money. We kept going, and suddenly, it was a five-billion-dollar New York Stock Exchange REIT.
And then we bought Western Hotels. That made us a 7 billion REIT. But at the same time, we were closing West, and I decided to go after ITT Sheridan, which was 14 billion. And we were 7 billion buying a 14 billion company bidding against Hilton, which had been around a long time. And I’d invented this company two or three years earlier.
They bid cash. We didn’t have the money to buy ITT. So we bid stock, and my shareholders were loyal. The stock went up when we made the bid. So, our currency was worth more, and we bought the company. And we were suddenly a 20 billion company.
Chris Powers: And you were 37.
I was 38. I had 120,000 employees in 80 countries and had yet to learn what I was doing.Barry Sternlicht
Chris Powers: Okay. You, you said a lot there. I’ve got notes, but okay. Well, the first thing I was going to ask is you and Bob. They both went on to create big companies. So it’s clear there was some magic there, but okay. You said by the 38, you had 120,000 employees in 80 countries. And I assume you had two guys and an assistant six years earlier.
So I need to learn how to ask this in the least loaded way possible, but how do you scale a company from two guys and an assistant to 120,000 people in seven years? That is, you can’t find that. It sounds amazing. You can only see the story here, even at Blackstone.
Barry Sternlicht: So I got, in the RTC resolution, the Savings Loan Trust a crisis. I got let go from my job in 91. And a friend of mine said he backed me in my firm. I was looking for a job, but I wasn’t. I wouldn’t say I liked the feeling of getting fired. So that’s interesting. And he gave me 10 million. Another family I met gave me 10, and my old boss gave us one.
So that was 21 million. I was an acquisition guy. I wasn’t; I didn’t consider myself a real estate guy back then because I did corporate stuff for JMB for my old firm. So I called Bobby, who was at Trammell Crowe. And I said because I was modelling. A lot of people model their own experiences. I was sporting my alma mater, JMB, where Neil Bloom was the acquisition guy, and Judd Malkin was the asset management guy.
JMB grew to have 10,000 people; 50 of us reported to Neil, and 9,550 reported to Judd or 950, so I was Neil. I was the acquisition guy but needed somebody to run the stuff. And so I called Bobby and said, we split the firm, and you, you’ll manage. And I ran out around the country. With one of the fellows, we bought 8,000 apartments.
Twenty months, 18 months. Then I sold them to Sam Zell, and Bobby wanted to live in Texas. I’m from New England. And so we split, bought a multifamily management company, and sold all our multifamily assets. So Bobby took the remnants of the company we bought and created a great story. He’s done amazingly well.
And I left Chicago and moved to Connecticut. He moved to, I think, somewhere in Texas at the time and wound up in Beaufort. That’s how you say it, South Carolina, Beaufort. So, he built a pretty amazing, one of the country’s largest, multifamily property management companies.
And I went off and started doing hotels, and he took, I think, one employee; everyone else went with me to the East. But it’s like, you never look back. I didn’t think I never thought I couldn’t do it. I thought I was; I have a good memory. I work hard. I have unreasonable common sense and never thought I couldn’t do it.
I don’t know. And then I got scared. Like I’m going up the elevator at St. Regis, and I’m on national television, making my bid to control ITT Sheridan, one of the largest conglomerates, it was the largest conglomerate in the world. It was run by a patrician gentleman named Rand Araskog, who’s since passed away, and their office is on 6th Avenue.
Rand had six secretaries. You know, I went to see him. I was going to the White House, you know, it was like I had to get through a wall of assistants, and I was like this company I created from air. I was making a bid for this 14 billion-dollar iconic company. At that point, they owned a Yellow Pages business.
They owned a piece of Madison Square Garden. They held it, a conglomerate, but they had IGT share. They had the Sheraton, which is what I wanted for that company. They’d also own the St. Regis, and I was trading assets like the 30-year-old Embassy Suites in Tempe, Arizona and the King 8. We had a clothing-optional casino in Vegas, and we were trading better than they were trading.
So I’m like, I’m going to upgrade and sell them this crappy hotel, the King 8, another roadside hotel in Vegas for the St. Regis. It is easy; I got away with it. But so I knew what I was doing from that perspective, but I didn’t know. And I was scared of how I would manage a company of that scale, you know?
And yeah, I was worried because we were carrying a boatload of debt when we merged that, like the money from Egypt, wouldn’t show up. You know, how do I know it’s going to show up? And then, I had three companies. I had three of everything. I had three heads of it because Starwood Lodging was based in Phoenix, where most people were.
I was here. Then I had Westin Hotels, based in Seattle, and Sheridan, established in New York and Boston. And I had three of everything: three heads of marketing, three chief councils, and three heads of IT. And I’m like, which one am I going to choose? So I went out and got Anderson consultant to help me interview and select.
And I say, okay, they take this guy. And then I made a lot of bad picks. I realized that I needed to have the right team. And so you know, learning on the job when you’re public is quite a something to have to do, you know, cause you, you all your, I was the wonder can, and then I was the fool at the same time.
You may recall our stock was that we were the biggest hotel company in the world measured by cash flow, and we didn’t exist three years earlier. We were more significant than Hilton and Marriott, not several hotels, but because we own a lot of hotels, we had more substantial cash flow, and Marriott did not like this. We were growing like a weed.
So Bill Marriott went to Washington. And got rid of or ask them to remove, we have this unique structure called a paired share REIT. I thought investors would care about this, and it was part of our secret sauce of why we were trading at a reasonable multiple because what it did was it allowed the management and the hotel to be owned by the same investors.
In the old days, the management had to be separate, and the two didn’t; they conflicted. For example, you get paid off revenue if you’re a management company. So the higher the revenue. The more money you make, but you do that at the expense of profits. For example, if you checked into my hotel and I gave you a Rolex watch, you would have high revenues every time you checked in, and the owner would go bankrupt.
So, I’m a better mouse track. You have the whole profit stream, you get the management company and the asset, and there were five. They were grandfathered; I found one of them and took control of it, which became Starwood Hotels, Starwood Lodging, Starwood Hotels, and then Starwood Hotels and Resorts Global.
And I was selling it. Marriott said that’s an unfair advantage. So they went to Washington, and I’m like, I’m a young kid. I’m like, I’m going to tell everyone, I’m going to say to the White House, everyone should have a paired share REIT because if the management company cared about the asset, the markets wouldn’t get overbuilt.
There’d never be hotels built because the management company would care. So I was naive, but Bill Merritt’s daughter or son was married to Orrin Hatch’s kid. And they threw this into a budget reconciliation act to eliminate the paired shared REITs. And I’m going to go down to Washington. I’m going to tell everyone.
So I was ready for my moment, you know, in Washington. Oh boy, was I overmatched. I went down and met with Clinton’s budget director. I am trying to remember his name. He’s still around, and I, oh, it was Larry Summers. And I said you’ve got this wrong. Like, and I explained to him, because I said, they’d save like a hundred million dollars that they get rid of the ten pair of trees. I proved to him that wasn’t true. He says, well, you can just kill us on the Hill. So then I called all my, I knew all the senators from New Jersey and Connecticut and New York. I lived in Connecticut then, and they said they would help me. And I started making some serious progress on defeating this.
Bill, and then Lauren Hatch attaches it to an IRS restructuring bill, which is voted like a hundred to zero. Like everyone votes for the IRS restructuring, and I die. Like my structure passes, and I’m like, what just happened? I thought we were making such progress to kill. I went down to the budget office and whatever review, and I’m like, how did you model this?
How’d you come up with this? So Bill had been in the Republican party for 25, 30 years. And he’s a Mormon. Orrin Hatch was a Mormon, and I was DOA. I was dead on arrival. I never had a chance to make my great speech in front of Congress and tell them why this was the best vehicle ever, and they should replicate this stuff.
And I want everyone to have parachute routes. So, this is true.
Chris Powers: And why do they only want some to have paired share REITS? Why wouldn’t everybody be one?
Barry Sternlicht: They wouldn’t give you the time of day to talk about it. It’s like, it’s politics. And you’ll learn in Washington that it’s not necessarily the issue in front of them.
It’s the fact that that guy didn’t vote for me on that committee. And I didn’t get that chair three years ago, and I will never do anything they want. So Washington is a whole, it’s not business. It’s not common sense. It’s a whole other, as you can see today, a full nother stream of stuff that’s power.
And it’s powerful and intoxicating to walk to the senators and members of Congress, and they wouldn’t listen. I mean, I didn’t have a chance. The guy was Bill Marriott, who had been donating to the Republican party probably for 50 years. And I was dead. Our stock went from 54 to 17 because we had to convert from a REIT to a C corporation.
We eliminated our dividend and took a little, and then many people had this: they wanted our dividend, and they didn’t get one. And they, and so all this is happening when I’m 39 years old, and I’m like, Oh my God, what did I sign up for? But you power through it, you know, I stayed the course.
One of the things I tell people is leaders. If you’re leading a company or ahead of any, your job is to absorb uncertainty. You can be scared to death, but you can never show that. Because if you’re scared, everyone will be afraid. If you say, it’ll be okay. It’ll be okay. So I said it was okay.
And then I was scared to death. It would be okay, it’s funny. You want things that nobody knows about. I could tell you about another situation. No, no, we don’t have time.
Chris Powers: Well, I will tell you this. You beat me to it because I had dinner with our mutual friend last night. They said you have to ask him about a shared pair of REITs.
And I have two questions that come out of that. One, why were you able to see that they were an opportunity? And to be clear, was that the first REIT that you bought, and you were going to use that as the vehicle to continue acquiring? So, I have two questions. How did you have this grand vision that this is the vehicle, and nobody else saw it?
Barry Sternlicht: It wasn’t the first public company we’d taken. There was a company called Angeles Participating Mortgage Trust with a 30 million market cap. And for some reason, when I was 35 or something, I decided that at 34, it’d be interesting to own one of these things. So we bought it, and I parked it in our company; I don’t think it was more than 30 million. What happened to a bunch of mortgages that were going bankrupt?
Chris Powers: And you were like, I’m going to buy this thing?
Barry Sternlicht: I want the shell. I thought it would matter. I don’t know why. I can’t remember what I was thinking. It was 33. So we bought this, and then when our second fund was doing mezzanine debt and the opportunity, the equity markets we thought could have been more interesting. So, we shifted to get the same kinds of returns we thought in mezzanine debt. And we decided to take that public. I decided to take it public through that vehicle. So we folded all the paper onto this shelf read listed on pink sheets and issued all the stock to ourselves.
So we owned about 90 per cent of the shares, but then we added that we raised an IPO or secondary because it’s already public. It’s not technically an IPO; money was raised for the vehicle. And then we bought another company. That company was called Starwood Financial. And that’s how Starwood Financial was born.
And today, it’s called iStar. It changed its name because we had Starwood Hotels, Starwood Capital, and Starwood Financial, and everyone was confused. So, we changed it to iStar. And run by, we spun off one guy, two guys to that company, and they ran it, and Jay Sugar man was running it today. It was running it 20 years ago.
After buying all those apartments I mentioned that we sold to Sam Zell and triple letter investors’ equity in 18 months, I went to see Westinghouse, which was going out of business in Pittsburgh. And we’d bought apartments in a bit of land at that point. And I said, do you have any flats?
They said no. Do you have any hotels? It was like, fish, you know, like, do you, what do you, do you have any land? No. Yeah, we have this portfolio. It’s under contract to this guy, another money manager in Boston run by this fellow Chick Hill in Memphis, Tennessee. And it’s still open. And, you know, Chick will do the deal with you.
Again, I am still determining who does this, but I did. I went to see Chick Hale, and I said, Chick, we’d be more fun to partner with than that other group. It was AEW in Boston. Nobody knows these stories, by the way. It is so old. Nobody’s heard this stuff. Come on. So I go to see Chick. He loves baseball.
I’m a New England kid, but I’m not from the South. We hit it off, and he agreed to switch and do the deal with us; one of the things the company did was call Davidson Hotels, which was they managed assets for this REIT. It was called hotel investors’ trust. And I could see. So I looked at that company, which was this paired shared REIT.
There were five of them, but they would be ignored in the capital markets like nobody paid any attention to them. And I could see that the company was liquidating. It had 200 million in debt and an eight- or 10-million equity market cap. It was, and to pay off its debt, it was just selling hotels one after another.
So again, the vehicle was attractive. The shareholders and people would care about eliminating conflict of interest. That would matter. And so we went, and they didn’t have significant assets. I tried to remember our most affable asset, but it wasn’t pleasant. But I went out, and I approached. There were four, and we found out who owned the debt.
There were four people who, this gets to a hilarious story. There were four shareholders. So we bid them the debt, and we bid it at about 60 cents. And you know, everyone said we won’t sell it for 60 cents. I said, well, here’s the math: your debt isn’t worth par. And so we got one of them to put their debt up for an auction.
And, like, it was Hancock, and we did it because we knew why they were selling it. Cause I had just been to see them to tell them their debt was 60 cents. So we bid like 70 cents, and we bought it. Then, we managed to buy the other three of the four debt holders, including Hancock, but we needed the last one, which was Wells Fargo.
And I’m going to come back to that story. Cause it’s exciting for your viewers. But anyway, we took all the company’s debt and said we’d cancel the debt. We put some assets we bought into the company, which became Starwood Hotels. At the time, they were called Hotel Investors Trust.
So we’re going to call it Starwood Hotels Investors Trust. And that would reflect the acronym Starwood Hotels Investors Trust. We didn’t like the acronym. So, we kept HOT’s stock symbol, which became the vehicle. And then we won’t pay off the debt. We did an IPO or secondary, then paid off all our debt at par.
So I took all our money out. And then Merrill Lynch helped us out. A fellow named Marty Chico is a good friend. And he lent us the money to buy the debt. There are multiple interesting stories about this, but one of the more exciting stories is that I’m a young guy. I’m super frustrated.
I want to buy this debt from Wells Fargo. I tried every every skill I had. Charming, you know, challenging. I tried everything. Grace, you know. And I left this fellow at Wells Fargo a voicemail. You see, I was frustrated. I’m 34 years old, and I’m like, this isn’t worth par. It would help if you sold us this pay.
He knew I was so pregnant that I would pay par for their paper because I needed to get all the debt to restructure the company. You know, and I might’ve said something like you’re an asshole. Well, it turns out we want to ping par for the dead, and it got them out, but he kept that recording.
And for, well, that was, in almost ten years, Wells Fargo would never do business with Starwood, and today, we’re the second most prominent real estate borrower in the nation. Still, that fellow almost became the CEO of Wells Fargo. And he was like, he was probably 38 at the time, you know, and an exciting lesson.
And, you know, I said, I was in my youth, I didn’t know what I was doing, I was like super in, I didn’t mean it. But, when people visited him, he took great pride in playing that recording of me being a jerk. So, you learn as you get older, you get a little more humility, but. It was a funny lesson for me about how you never know, you know, who you’re going to deal with later in life, and you never know where they’re going to go.
So try to like every interaction and branding moment and be nice. And that was an important lesson. The other exciting lesson was Blackstone was our partner when we bought Davidson Hotels because we needed more money to buy the company. They didn’t have a real estate arm, but they had a fellow who had been working that I worked for at my alma mater, and he was advising them, and I brought them this deal, and we split the deal, and we did well.
We made a lot of money, and they said, let’s do hotels together. And I said, well, I, at the time h, ad the Pritzker family. I thought a whole bunch of families, as if, as investors and I, they had the right to any deals we did not have. Not somebody I wasn’t working for, Steve Schwartzman wanted to hire me to run the real estate group, but he hadn’t done a real estate deal.
So I was curious if they’d get into real estate, which is funny because they’re the largest in the world today. The majority of their earnings come from real estate. John Grey was the analyst looking at hotel investors’ trust back then. It was exciting because they wanted to avoid seeing our position, which was that we needed to control the debt.
And they’re like, we want to avoid getting involved here. I said, well, we were pregnant. And then, when we got control of two-thirds of the debt, which you need to restructure the debt, my investors didn’t want to give them an accessible option anymore. So we went on our own, but that’s another story for another day.
But I turned down Schwartzman to run the real estate group. It’s in this book. It mentions it.
Chris Powers: And I have it in the notes. I might ask it now: Even as we look at it today, what do you think about Blackstone? It’s Starwood, Blackstone. You may throw KKR in there. Do you think about them often? Do you compete with them?
Barry Sternlicht: Yeah, I think about them every day. So, we run the first and second largest non-traded REIT. We often get involved in big deals and can be pesky. They are smaller than they are, but we can form consortiums and have many similar investors.
We try to stay out of their way because they have so much capital to put out that. They’re likely, and there’s an exciting story. We bid on a company, and I left Star Hotels and returned to start capital in 2005. There was a company that I had my eyes on that had been attacked in France by a raider named corporate raider named Asher Adelman.
And this company, to fend him off. And the company owned an unbelievable portfolio of hotels in Paris. I knew from Starwood Hotels that it was the number one travel city in the world and one of the most complex markets to enter. Starwood Hotels, as large as we were, we only had one hotel in Paris.
And so they had the Crayon, one of the world’s most famous hotels and six other fantastic hotels in Paris. And I, for some reason, had visited; I decided to see if this if the company would sell. And I visited a woman named Anne Claire Tattinger from Tattinger Champagne in Paris. He was trying to convince her to let us take them private, and lo and behold there was when Asher attacked them; they had partnered with a fellow named Albert Frere, a Belgian billionaire industrialist, but his standstill was coming off, and she called me and said, we’re going to sell the company, and you should participate.
And I’m like, I don’t think I want to participate because they’ll never win. And I said I was assured by the bankers at Rothschild that we’d get a fair shot. I was in the Nantucket. It was in the summer of 2005. So I said? I’m not going to waste our time. 3. 2 billion dollar transaction.
It was so big, and our fund at the time was like 600 million dollars. I just came back from Star Hotels, and I was coming back to start a capital. So the funny thing was, we went over there and did the work, and I had been the CEO of a public company. So I knew I didn’t approach her like a financial guy.
I was asking about HR policies, not about margins. I was asking about retention, not about decimal places. And why did your EBIDTA drop 0.001%? Which other firms did? So we, Primera, CVC, Blackstone, KKR, they were all bidding against us. But I spent my time loving Sinclair.
So, we were guided to our second bid; we made the second round, which shocked me. We had partnered with TPG because I didn’t have the money. And the pricing got a little high for TPG; at least, they thought it did. So they dropped out. So now, I didn’t have the money to buy the company, but I thought I could raise it because it was a fascinating asset.
We had enough money to close it, but the fund would have had one asset. It would have been the 600 million dollar fund with one investment, which would violate the concentration provisions of the fund’s documents. So we had this auction, and you mentioned Blackstone. So Blackstone, the second round, they bid, the second bid, they bid.
So they bid a price, and then we bid a price in the auction. And then they threw in a new bid after they saw they would lose. And their bid was one euro more than anything Starboard would pay. You can do that. And they said, auctions closed, and they sold it to us. And I know Steve, who has a home in the South of France, was upset because we had a beautiful hotel, Martinez and Con.
We had this hotel that played the med and Nice. So, we had a beautiful portfolio of hotels, and I was able to raise all the money. And I funded it. I travelled the world. For some reason, I decided to raise money from wealthy families on every continent. So I’d have eyes and ears to help grow the business.
So we raised all the money and bought the company, and it was so Blackstone, and we were friends. We financed their deals today through Star Property Trust. They’ll finance our deals through BXMT, their mortgage trust. We split deals, and we went after we had tried to buy extended-stay hotels.
When it went bankrupt the first time, we formed a bidding consortium with TPG; I forgot how the other part was TPG and then Blackstone came in late and back centre bridge, and I think it was a square mile in, and they, we bid against each other in a conference room like this in Atlanta, the bidding started at like.
Four in the afternoon. And by two in the morning, we’re still bidding. And we’re going out of the room, deciding to bid again. All the creditors are in the room, and we get to, we owned. There were seven; it was a group called Light Stone that had paid like 7. 8 billion for this enterprise, and they put 7 billion of debt on it, and the whole thing collapsed in the GFC, and we had bought all the debt from four to 4.4 billion for like Pennies. So if the bidding got to 4 billion, we would own the company because, for a dollar, we’d have the next $400 million of value. So the bidding gets to like 3.9 or 2.5. And again, we need more money. We don’t have the money to put up half of the funds, and TPG and their infinite graciousness.
So they’d lend us the money at 20% to play. I’m like, I can’t borrow 20% of your money to try to buy this company because it wasn’t obvious. This thing was going to work. So it was interesting. We lose, and Blackstone and the other guys buy it. They take it public and make four times or three times their money.
What was interesting was that I tried it in that room. We were fighting to sponsor the bankruptcy; when you go bankrupt, you can do the sponsor, the bankruptcy proceeding, and then there’s a breakup fee. So you call it, you know, it’s called the, I forgot exactly the technical term, but you get a breakup fee, a topping fee if you’re topped when it goes to open auction, so that was, they were the plan, the sponsor plan to reorganize the company.
I should have bought this company in the time it took from when we started. I made a mistake, and I tried to go back and did it and paid the breakup fee because I thanked them or congratulated them without actually shaking their hand. I congratulated them at two in the morning.
Cause I was super tired. The judge on appeal said that you’ve already accepted the bid. You can’t bid against them and let them buy the company. I was like, wait a minute. That wasn’t, that’s not the bankruptcy law. There’s no court of appeals in bankruptcy. They can do whatever they want, but that was not a lesson.
I’ll never thank anyone again at a bankruptcy. I bought Sea Island and went bankrupt, too, but there we partnered. So, Blackstone, the funny thing is an extended stay in the pandemic, the stock trades down from 20. I tried to buy it six times when it was public, and I changed that from 20 to eight or nine shares; we believe 10% of the company.
We’ll take it private because now I have the stock cheap. Blackstone had been in the stock, but they traded out of it, and we still held our stake. So we wound up making a bid, taking it private. And I called Grey and said we should do this together because I knew they’d top me.
But here, I had a huge competitive advantage because I owned 10 per cent of the company at nine. We wound up taking it private at 21. And it was, it’s been a good deal for everyone.
Chris Powers: Why did you take it private?
Barry Sternlicht: That’s my job, to like, you know, make money for us, for our partners. I took it private and recapitalized it, and we’ve been selling hotels, and it’s done well, you know, some suit well.
Chris Powers: How do you buy a REIT? Like, I know how you buy it. If you’re just an individual going in but have built this career of going after these public companies for the average listener, that’s listening. Assuming they had some money behind.
Barry Sternlicht: I worked after college; my mom, when her three boys went to school, became a stockbroker, and I worked in the mailroom of the Lehman Brothers when I was in high school.
So, when you could say on your resume that you worked at Lehman Brothers, even though I worked at the mailroom, like the petroleum distributor, the guy who’s worked at the gas station, I worked at Lehman Brothers and didn’t get out of the mailroom, but I did a good job; I had another job and forgot it was another summer.
I was responsible for reconciling bad trades in the New York Stock Exchange. And it was like, you had to like. Match the tickets back then. It was a joke of a job, but at least I tried to stack my resume to get a job because I was not a finance major. I never took a math course in college. And I didn’t take algebra, either, but there is something else nobody knows about.
So, I went to Brown specifically, so I didn’t have to take a math class. I was scared of math. Anyway, what were we talking about?
Chris Powers: I asked you how you buy a REIT and how you buy these.
Barry Sternlicht: I always look at the stocks to see what might be cheap. And then the idea that I could organize to take private of it, take it out.
Chris Powers: And do you have a, like, is it you or do you, did you hire a team along the way, even going back to the early days? Where you had a team of bankers and finance guys helping you put the whole equation together. Is this you on a napkin? It makes sense. And you are then handing it to the team.
Barry Sternlicht: Me more than a napkin. We had a big team, but I have a team back then today. I had a lot more today. We have; I need to find out where you stopped counting. We have 19,000 employees, but it started capital to parent, probably 350, the mortgage company, another 300, 350, 2,000 3, or 000 people on our property management arm based in Dallas, and then hunting thousands in the hotel company today.
So, and title company, we got other businesses. But we try to hire good kids who can; I’d much rather have them sleuth it out than me. But I spent my career when I started trying to find these undervalued public securities, you know, the company was a company in Japan that had a, whose land was more twice the value of the company.
There’s a company today in Japan. I won’t say which one, but it’s real estate assets. There were three times the stock price. And for three years, we’ve been trying to take it private. You just can’t. It is in an industry that the government will be concerned about, but I don’t want that part.
They can have that for free. I’ll give it to them. I want the real estate assets. We took a significant stake in that company but have yet to convince them to take it to the max, restructure, or spin out the real estate. So, you know, that one has yet to work, but Orient-Express Hotels, which got taken private by LDMH, you know, Belmont, it turned to.
It became Belmont, and we bought a stake, and then we bid on it and got taken out by a massive number by LVMH, but it made sense for them and national golf. We take in private other companies trading on the New York Stock Exchange. We try to find things we think are undervalued, and I don’t fear buying a REIT.
We took a private Canadian hotel recall milestone, and one of the guys here found that opportunity. It should have been noticed and overlooked because it wasn’t listed in Canada, but its assets were in the United States. During the pandemic, we raised 700 million monthly to target companies, including ESH, which we bought at the time to buy cheap rates that the public market had misvalued.
The public market, you know, has wretched excess and wretched discounts, and real estate is rarely valued correctly in the public markets. So the problem is when you take a private. Even if it’s at a discount, the board may say, you must pay me total value. So you have to, we recently took two private companies in the UK.
We have a third one we didn’t take private because the deal was too big for us. We liked the assets but needed more money to take them out in this climate. So, we’re always looking for opportunities to deploy capital. It’s my job, and the team is broad and talented today. So I’m more coaching than finding, but I still look and like finding crazy things to do. That deal in Japan came from your friend, Rick. He called me about it.
Chris Powers: All right. It is a selfish question. My company has about a billion in AUM, and I want to go to 10 in the next five or seven years, we own a hundred percent of our GP, my partner and I, and a hundred percent of our operating company. We’ve never taken on partners or anything.
If you were in my shoes and it was like, we’re buying industrial, and you were going to go from one to 10, how would you think about ownership? One of my downsides over time is that I’ve tried to own too much of everything. And your answer isn’t, you can, you have to own more of every deal to get big, you have to hold less to grow.
Barry Sternlicht: That’s generally true. How have you felt about ownership? Well, the parent company, when I raised the first money when we started, I gave, and they let them. They bought 20 percent of the parent. You know, it was nothing in the parent at the time. So, I gave them 20 percent to fund our overhead.
So they put up a couple of million. It was like a million and a half dollars. We borrowed it from Bobby and me; it didn’t matter because we never had the money to pay it back. So, at 30 years old, I was 31. Bobby was 29 or probably 30. He’s a little younger than me. But yeah, the parent selling a minority stake is a good idea to get capital.
For example, I seated another manager in the securities or debt business if somebody committed a crime. And I put in 25 million. I got two other guys to put in 25 million. He couldn’t raise any money on his own. And today the 75 million is now of seven or 8 billion to our manager. So, and I, for that, I got like 5 percent of the company, you know, the other guys got 5 percent also, but they’re sunsetted.
They went away after X years. Mine is still in place. It isn’t possible if you have to figure out what your limit is to get to 10 billion as capital. Is it human capital? Do you need to raise more considerable funds? Cause you don’t necessarily have to sell, but if you’re in a rush, somebody like us with 15 or 16 sovereign wealth funds as clients, you know, we can get the money if you’re good.
So, sell us a 20 percent stake; we’ll do a deal right now. And then you can do it: be our industrial guy.
Chris Powers: So, do you want to do a deal live on a podcast?
Barry Sternlicht: Yeah, let’s do it live on a podcast. We’ll have to assess your financials. So, no, we’re always, it’s funny because it’s more and more I’m looking to back people that can do niches.
In a way, we’re blessed and handicapped by our scale.
We have to do big things, and some young man I met in Riyadh, and I, this, a young American from San Francisco, came up to me and said, I’m doing this stuff. I’m here to raise money. It’s like, we’ll put up all the money. I will be your limited partner.
You can have the profits. You can promote us just like I encourage my investors because we can’t; in a way, we’re capital allocators. You know, our job is to put the money out, and we need help managing this stuff. It’s too granular, and in the world, you have to think about the world and everything like the pyramid of scale, right?
There’s probably zero, but it used to be five or six deals done of 10 billion or more in real estate a year, maybe, or 5 billion, maybe 10, 15, there’s a trillion, 10 million investments. If you have a machine to do 10 million a hundred times, that’s pretty valuable. In some ways, I’d rather have that than the one investment, but I need it; I can’t.
At our scale, I can’t have 40,000 people managing that asset. So leveraging off other platforms is something we’d like to do more of, not less of, and local sharpshooters who know their vertical, their business cold and understand real estate is such a local business. It is so critical that you, I joke about it, internalize it like the Harvard Business School people.
I’m one of them. So I can be critical of me. We think we’re super bright, but somebody told me we’re smart because we got into Harvard Business School, not because we are wise, but because we go to a market and only see what’s there today. We don’t know what was there five years ago, and we don’t need to know what’s likely to be there in five years.
So we’re taking a photograph, but we need to see the video. It would help if you saw whether our people are coming or going from this area. Are the demographics changing? Is the ethnicity changing? Is this a rising area? Weakening area. And I always talk about the strip center in Stanford, Connecticut, where I grew up.
And if you went, if you’re us, one of my guys, and we went to the strip center, we saw, Oh, it’s in a great location, great cars, good traffic. The corner of that center has been vacant for 30 years. If you’re local, you know that. The tenant has never survived. They lease it, and he goes bankrupt; six months later, he’s out.
So if you’re local, you know that. The guy, my guy on his computer, he’s just going to fill in; we’ll run 95 percent occupancy, and everything will be fine, you know. So, having that, when we started, we started buying apartments in every market. I found a local guy like I found this guy out blonde moves in Denver, and he, I had him marches around Denver.
Like, I don’t know. And I’m with Bobby’s faith. We’re in a car, we’re in Colorado Springs, and we’re driving down the road, and he says, he goes, and he says, well, that’s T one 11 citing. And I’m like, I looked at Bob, he’s like, is that good or bad? I don’t even know what it is. But it was interesting because the locals know things and you don’t.
And I’m terrified of being a stranger in a strange land. We invested in India, and we built with it. We did everything right. I thought we had the here and Don here and Donnie’s family. Gordon Ada was our partner, along with Steve Ross, Steve Roth, and several other local Indians. We built the greenest building in Mumbai, and half the building was pre-leased to Citibank and became their India world headquarters.
The land we bought from the state and the state from the state, the state of whatever Mumbai is in when we bought the land, they had a gain. They’re supposed to remit the money they got to the federal government, and they didn’t. The federal government sued the state and put a lien on our assets.
That lien is the most senior because the federal government primed our mortgage; we had to pay off the mortgage, and the building was prosecuted for a year. And then we had a partner in the thing, and he said we had a put. So we said, we’re getting out. He goes, good luck to you.
What do you mean, good luck to us? We have a put. He goes, it’ll take you ten years to navigate, to litigate the put. So, a stranger in a strange land. When you go offshore, you don’t know what you don’t know. You have to get such a significant premium for investing in what I call the emerging markets.
And sometimes the capital says, I want to be in Brazil, or I want to be in India. In both cases, we went to Brazil and India because our investors wanted us to go, and they were hot. But the rule of law is not our rule of law, and in India, with what we consider corruption, they consider doing business with the family; why wouldn’t you hire your mother?
So it takes a lot of work for foreigners to operate in somebody’s market. You can do it, but just be where you don’t even know the questions to ask because it’s outside of your framework; in our investment memo on that building in Mumbai, it was never a risk that the federal government would sue the state.
And it closed down our project and had nothing to do with us, right? I’ll pay your taxes, guys, and then we’ll return to business. But that also happened in Brazil to us. We had a project with Related, which we funded, that got caught in litigation. They said that we didn’t have our permits, but we did have our permits.
But then they said a lousy guy issued them. I’m like, no, he was the guy in the job. So I was like, he could be a better guy. And now you say, how do I know you’re not the bad guy? Maybe he was the good guy. And I mean, the whole project stalled and took years, Mexico, the same thing happened. We, the pandemic struck, no, it wasn’t the pandemic.
It was the GFC. We sold the whole project out. It was in Cabo and haciendas. And if we closed, we would have gotten all our money back. And we had the entire second phase for free. And then everybody wanted their money back in the, you know, 708 when the crisis hit, and there was a judge, and we won the case four times.
And we kept getting sued again, and it just kept hearing it. I called Carlos Slim, who I knew, and asked, “Can you help us with this judge? It is going to, we’re never going to get these assets to sell, but things go awry. And that’s just, and that was international. The same can happen locally.
You need to know these markets very well and be very smart, and it’s common sense, but intelligent people think they figured things out that they don’t know.
Chris Powers: So, is China investable?
Barry Sternlicht: Not really for Americans right now. For Americans, you know, not for us, the Middle Eastern investors have, you know, we are just politically, you can’t underwrite the risk.
Chris Powers: I want to get to one more thing, which is another unique thing to you. You started Starwood Capital. Then, you started your Starwood Hotel REITs. I need the name. What do we call it? Starwood Lodging and Trust became the CEO of that. And then it’s like, you parked Starwood capital for a decade and then grew this thing huge.
And then you were like, Hey, I’ll see on the other side of it. And how did you keep Starwood Capital going all those years when you were focused on something?
Barry Sternlicht: I mentioned that Sheridan was in Boston and New York City, and Western was in Seattle and started. Lodging was in Phoenix, so I had to pick a new home for everybody, so I moved everybody to Westchester, the survivors and moved everybody out of Boston, Seattle.
I kept the accounting in Phoenix because it was cheap. Then, New York City moved to Westchester. And so I had a triangle from my home in Greenwich. To my offices in white plains to Start Capital, I pointed two of my lieutenants to run Started Capital while I was gone, and I spent, I work 120 percent of a normal human being.
So I spent 100% of my time at Star Hotels and about 5% at Start Capital, just watching what was happening. We had raised a fund, and I left it for them to invest. And, you know, being a public company CEO is an acquired taste. You know, there are incredible blessings.
I went to Davos every year. I was one of the top executives in the country, along with the CEOs of Kodak, for diversity early on in my career, celebrating diversity. We were a Fortune 300 company out of air. So, I met many interesting people and became friends with many CEOs not in the real estate business.
I don’t think of myself as a real estate person. I am an investor. My day job is real estate, but I have a family office and do other investing in the disciplines.
You learn in real estate disciplines. You know how to negotiate. You can do that in any asset class, and real estate guys tend to be pretty good investors and have made money in others like Sam Zell and dozens of industries.
It’s different from the reverse, but many real estate guys succeed in their family offices and investments. And that’s: you learn discipline, and again, you learn about negotiating when to walk away from the table, when to stay, and staying hard.
That there’ll always be another deal. So, if it’s terrible, I was reminiscing about a deal that’s gone awry here. And that my two, my president and I, didn’t want to do the deal, but there was such pressure internally to do it, and it wasn’t a bad deal. We just, there was some hair on it.
And, of course, we shouldn’t have done it now. So later, but it’s not worked out the way we hoped. So, being a public company CEO, I was, it’s hard. It’s tough; it was a tough meeting about it. You are in the press constantly, and the analyst community would need to understand the company better.
It’s tough. Real estate is, again, a hard thing to be in a public company. For example, we had to do uneconomic stuff to produce earnings. I’d rather own the hotel than lend against the hotel, but lending is an interest income stream. It’s consistent across the year. Whereas, if you own the hotel, you must take all the accounting for it.
It’s as if you open the hotel the first year to write off all the opening costs, diluting earnings. Even if you’re going to the public, companies can’t report IRRs. There’s no such thing. So you have to do stuff. Marriott had this giant book of loans that you get consistent earnings when you have loans because you get the same thing in the first quarter, second quarter, third quarter, and fourth quarter. It started hotels on many real estate, particularly in New York City.
And our first quarter is terrible. New York City could be better. Then, in June, on Christmas every day, you make 93 million in New York shares, and we probably made 80 of it in six months and 10 in the first two months, the first score. So, they’re analysts like, Oh, they are Marriotts and have a smooth earnings year; no, they had this huge.
The loan book was giving them the consistency of earnings, and the market liked that better, but I would make more money long-term—the loan they get just paid back. I would make money if I sold that hotel for three times what I paid, but that was frustrating. I have made so many innovations at the property level.
I did the W, St. Regis. We started, XYZ was my new brand. They changed the name to Aloft. That became a lot. That was the cute little cousin to W Hotels, and I took it; I got into Vegas. We did some branding stuff. We did the heavenly beds. We did dogs. When the Sheridan went to the dogs, I did a lot of things, and the stock had been the best performing large cap hotel company in the world over my tenure; I won institutional investor lodging CEO of the year, which dethroned Bill Mary, who had it for 300 years. And I thought I’d done everything. Star Capital wasn’t faring very well without me at that point. We had a 567 million fund, and they’ve invested 300 of it over three years.
And I could return and make a hundred times the money I could be in star hotels. One of the exciting things is that when I was there, the Enron crisis blew up, and then WorldCom and I did many silly things. I put some people on the board that I shouldn’t have; I needed to learn more.
And I put one particular person will go nameless, and they were not business people. And when Enron and WorldCom blew up, this board member said the business judgment rule was suspended. How will we run the company if you can’t make a decision? And at the same point, they asked what a gross margin is, like what a profit margin is.
I’m like, Oh, this will be a long week. We went from having our majority rule on the board to having the lowest common denominator running the board. And it became very frustrating for me. And you know, I wanted to buy it. I did buy Meridian hotels, and that was a big wall. It became challenging to run the company.
And we had some succession issues, not succession issues. I had a problem with my then-president. And then we had one of the board members become the president, and then she tried to throw me out of the company, and, of course, the board threw her out, but it wasn’t enjoyable. And so it’s he’s being fun, and I actually would have stayed my next innovation.
Hotels would have been operating innovation. I would have changed the entire operating structure of the hotel company to do that. I needed a great. I needed an excellent functional part. I did not have one, and I would get massacred in the press when Bob Nardelli went into Home Depot; he changed many things, and they pilloried him, and he was probably right.
And you know, they did many dumb things, and I knew what I wanted to do, but I did not have anyone to execute it, and it wasn’t worth it. So, I’ll give you one last story, which people have yet to learn. So I’m selling myself; at the time, I had a president who was, and I decided to split with him. We own Caesars, which came with IGT, the casino company.
And we own, I mentioned, when we started lodging, and I had a bunch of casinos. I’ve been licensed four times in Las Vegas. So I’ve been in and out of the, which was a record. So I hold the record, which nobody knows that either. Cause I think Sheridan, we took over, I think it was the Aladdin became a planet Hollywood, and we were managing it.
So we went back to the strip, and I had Caesars, which I had to get, and then I had to get licensed in New Jersey and Mississippi, where we had all these other operations. I decided to say something different than I liked the gaming business for Starwood because of the amount of capital you had to invest in a single asset.
It was like all of the free cash flow of our company. So we needed more concentration. And I am also worried about the proliferation of gaming with the Indian casinos in California, which is a considerable feeder market for Vegas. Still, it was mostly the risk and Caesars, you know, it’s old, and they built this new wing behind Caesars Palace.
It wasn’t doing well and was beautiful but didn’t resonate with investors. They liked the old one. They picked the original Caesars, which had the mirrors on the rooms on the ceiling, but nobody wanted the new rooms. They wanted the rooms with mirrors on top. They didn’t know your customer.
And the old, like the old, the ancient circle with the low ceiling where they, where the Baccarat pits were, they would gamble there, not in the giant, beautiful, new gymnasium they built, which didn’t have any of the ceilings are too high. Steve Wynn, you know, that’s the way he designs that.
Steve Wynn, the ceilings were just as high if you went to the Encore or Bellagio. He pulled all the ceilings down by creating these little pits like Laura Ashley’s pits. So you only think it’s 12 feet tall, but it’s 60 feet high, which makes you feel intimate. You felt like you were in this private gaming environment, not a gym.
And C, and it’s like, that’s what you can’t put on a PNL. It’s like its design was creating the PNL for him. And when he did, Encore, you did the same thing. And I was like, you know, I’m, I’m friends with him, and it was an exciting experience. So anyway, I’m going to sell; I’m curious if I should tell this story.
I’m going to sell Caesars. My partner at the time had negotiated a deal with Arthur Goldberg, the CEO of Bally’s, a public company. And the price was 2. 6 billion. I wanted three. And we got into this little brawl, he’s left, and I call up to see when I said, Steve, well, I knew I said, you can buy Caesars, which, you know, Caesar sat between Bellagio and the Mirage. So this was the trifecta. I knew he wanted it. And I said the price is 3 billion. He done. I said, okay, great. That’s because my partner would never go to him. He said he’d quit because he negotiated with Goldberg, and Goldberg gets 2. 6 billion. So I go to Vegas. It’s one of my friend’s birthday parties, and I checked into the Desert Inn, which we own, into the Rand R Scoggs suite. Remember Rand R. Scoggs, the CEO? He built the most beautiful suites in many hotels just for him. So, the Desert Inn had a suite that The Amir of Guitar would find opulent. It was outrageous. I’m in that room, going to see Steve, and walking into his office at the Bellagio.
This conference room is probably 40 by 25. It’s 80 by 50. It’s gigantic, and a billion dollars of art is on the wall. And he goes, you know, well, great. I’m going to pay you 2, 8, 7, 5. And you can keep the Mississippi gaming boat. And I’m like, I don’t want the Mississippi gaming boat, but it’s still better than the two bids I had. And I want to get rid of this business. So, okay, we’ll do that deal. And he thanked me, so excited. I booked my reservations at the restaurant that night. I go out to Shadow Creek to play golf. I pull up at the curb. There are six people to help me get out of the car and carry me into the locker room.
I go into the locker room. My name’s on the locker between Michael Jordan and George Bush. I go out and play around a golf on the 16th hole. Steve comes out of his house with his German shepherds, and we chat. I get back to my suite. I pick up the phone, and this is a family broadcast.
I won’t tell you what he called me, but he screams at me at the top of his lungs. And you know, you traded me; Steve’s temper is legendary. And I, I saw it. And what happened while I was on the golf courses: Arthur Goldberg returned and did 3 billion in cash. And I didn’t know that. And he, there was a banker that was involved that I wasn’t dealing with our banker.
I didn’t even know he did it. So I said, I hung up the phone. I called the bank. I said, but what’s going on? Yeah. Arthur Goldberg showed up with 3 billion cash. I’m like, Oh shit. So, I went to see it. When I got there, I called Steve. He’s spitting through the phone. I can feel it spit on my face. He’s screaming. I see him.
He’s got the two German shepherds. I’m sitting on the couch in his office. He is screaming at me. He’s the color of a tomato, you know, a ripe tomato. And I think he’s going to say kill, but I’m going to be torn to shreds in his office. It is 2000, probably 2000. So I had just been ripped apart in a Fortune magazine article, which was utterly wrong.
And I said, okay, Steve, and he goes, I’m going to ruin you. The last part of my name became a swear word. You’ll never do business again. I heard you retrade me. You’re an asshole. I can’t believe you’ve done this. And he’s spitting at me, and I’m I think I’m going to die. The dogs are going to come out.
I said, Steve, calm down. Here’s what we’re going to do. I’m a public company. I don’t own this place. I’m just the CEO. I’ll take your bid to the board. You’ll be your two eight to five or whatever it is. And the boat and Arthur will be 3 billion. They’ll take his deal because the public company, and I’ll resign.
But you can’t say it was a bad deal because I had enough. I’m done. It’s not worth it. I have no banker. I’m not paying a fee to anyone. It would help if you found out who picked up the call. And then, you can come close. If you come to two nine all cash, and he’s at 3 billion 2925, I’ll recommend your deal to the board.
They’ll probably take it because Arthur’s a notorious retarder. I said, or I’ll pay you 25 million. To pretend you’re there, and I’ll sell the business to Arthur Goldberg. So, a stocking horse fee. So he thinks you’re still interested. And he’s screaming at me the whole time. And I’m like, life is too short.
Why am I doing this for the shareholders? I’m like, I’m trying to sell this company. I’m like, I don’t have the company. It’s like, no, I’m just, and in walks Bobby Baldwin, who’s a CLO. And he says, Steve, can I see you? So Steve gets up from the couch. I know he’s on the sofa; he might have been just hanging over me like a vampire about to kill me.
Billy Bob whispers in his ear, and Steve turns to me and says, I’ll take the 25 million. I’m like, what just happened? And he goes, Oh, we forgot the overhead. Our bid is like 25. I’m like, thank God. So wait, it gets even better. So that night, so he was, I was, I was relieved. I wanted, I didn’t want when to buy Caesars.
I thought he’d spend so much money trying to fix it up. He’d destroy his company. And so I was thrilled that Arthur Goldberg was going to buy it. I’m a terrible poker player. So I wear everything. You see everything I feel like, good or bad, but I’m correct in your eyes.
So I went back to New York. I stayed at the W in New York, and Arthur was parked up the street, and I never saw him. I never saw him because I feared I’d blink, and he knew I had no backup bidder. I got him to increase his price. He went to 3.2 billion but was only authorized to do three. And this is how bad the press is. So I knew that he’d eventually figure out that Wynn wasn’t there, and he’d cut the deal. So he gave us what he did, which was 3 billion. The contract said 3 billion. But if you read the contract, which the Wall Street Journal and Fortune magazine never did, it was public.
They could have read it. I got all the CapEx that we’d spent on the hotel for the last two years, which was like 2 million. So I had three, two in the bank. Anyway, I’m leaving Vegas that night. I’m headed home. I have my plane. I’m taxiing down the runway at Las Vegas International, and my pilot calls back and says, there’s a car chasing us down the runway,
And I’m like, what? He goes and looks out the window. I look out the window. A black sedan is chasing us down the runway, and somebody is waving something. I said, you better pull off the runway. We were on the taxiway, so we pulled off. And we opened the door, you know, he just stopped the plane, opened the door.
And this guy who’s a banker from whom I won’t mention his name to save him. He goes, and he’s holding his piece of paper. He says, Steve doesn’t trust you. You need to sign the 25 million. I’m like, you’re joking. So, I did this completely unauthorized. I had no board approval to do this, but they knew what was happening.
Long story short, it just takes you, Steve, to get approvals to close deals in Vegas. And Steve. He has an analyst meeting in New York City and sings Broadway songs to the analyst. His stock goes from 22 to 13. He’s getting attacked now by Kirk Krikorian. So Goldberg knows he’s not there anymore.
So Goldberg cuts the price to 3 billion, which I have always wanted Fortune article. It was fortunate that he out-negotiated me. You should read the contract and then, but that’s the press. And then. And the funny thing is I call Steve. Oh, he didn’t want the desert in.
So nobody took the desert. I still had the desert in. And so I called my best friend at the time, a fellow named Butch Kersner, who ran Kersner International with Saul Kersner. And we were young CEOs. We were pals, and they put it under contract. The desert ended, and their South African investor said, You can’t close.
So he gave me the money, the hard deposit was 15 million. Then Krikorian called me and said the price was 250 million, which goes down five dollars. I said it was a day if I didn’t respond, and I called Steve and told you the only way. So he loses Mirage, resorts to MGM Kikorian, buys it, and has nowhere to go on the strip.
I said, your only way back to the strip was to buy the desert. So, I told them the price was 275 million. The analysts valued it at like a hundred, and that was what I wanted. And he said I’ll pay for it. So I sold him the desert. Which became the wind and now the Encore. He tore it down, and Steven wouldn’t be on the strip.
So I played the opening round of golf on that golf course, which he built with Donald Trump. And I don’t know why Donald was in the foursome, but Donald, two friends of mine, Steve Roth and Skip Bronson, And we have a picture of that. So that was the opening round. At the wind, which is the reason Steve Wynn got back to the strip, was I sold him the desert inn, and that became when resorts and Steve made a couple more billion dollars on, but an excellent, amazing, fantastic episode of my life, part of a book that I haven’t written.
Chris Powers: We didn’t get to the market. Let’s bring it home on this. It’s 2024. Throughout 2024, you were very vocal about interest rates and why you thought they couldn’t be held where they were for very long.
Now we’re hearing six cuts. Where do you stand now? What, what do you expect from 2024?
Barry Sternlicht: You’re right. Throughout 23, I was critical of the Fed’s move. The collateral damage to the banking system is the real estate world. It wasn’t well thought through because, and the reason, I didn’t know he needed to raise interest rates.
Five hundred basis points was the economy was going to slow on its own. And inflation was going to go away on its own. The supply, what you did, is straightforward. You printed too much money, and no goods were on the shelf. So everybody bid for whatever was on the shelf, whether golf carts, Patek watches, or used cars, and prices went up.
But as soon as the supply chain is fixed, there’d be, then the shelves would be complete, and prices would fall, and they have, and oil prices have come down, used car prices have come down. So, the pandemic, but all this money had been printed, and Americans still had it and had a job, so they were spending it.
And, but the savings would run out, and the savings do run out probably in May of this year, the whole 6 trillion will have been spent. It gets recirculated, but it’s been paid. So, a rise in rates. He should have raised earlier when Dogecoin was worth 64 billion and the Lushibu, the baby Dogecoin, right?
There was, you remember, a casino; it was chaos. GameStop is pure speculation. And the Fed was silent as a mouse, and crazy stuff was happening. And they were quiet, and they didn’t see inflation. And the reason they didn’t see inflation is. A third of CPI is rent equivalence or rents.
His data on apartment rents is around a 12 to 14-month lag. We enjoyed it; we had never seen anything like it. Rents went up 20 percent in apartments, not only in good markets but in every market, in Peoria, Albany, Manhattan, Miami, and all across the country, and rents went berserk. The reason needed to be made more explicit, but they did.
And the Fed didn’t see it like we saw it. And they’re talking inflation, and on December 21, he makes a speech lower, longer. And he keeps buying corporate securities through May of 2022, basically essentially still easing and allowing the Democrats who have to one-up Donald Trump to come in and decide with America’s recovery act.
They’re going to throw another trillion-seven of kerosene on this flaming fire. Donald had just done 900 billion in December before he left office. So it’s 2 Eight trillion of money we didn’t need. That only exacerbated this inflationary cycle. So Biden’s package was cut by three trillion to one seven trillion.
And it’s a bridge too far, but I thought I knew rents were slowing, and I knew that this 20 per cent that he didn’t see would show up, forcing inflation higher. And just last month, and now we’re sitting here, what is it? January’s previous month’s inflation report shows rents. It’s up 6%. Rents are flat right now, or if you move rents from six to two, inflation falls below 2%, and it will fall below 2%.
So he will achieve his goal. I’m afraid I also have to disagree with him. We should have wage growth. Wage growth helps this country. And as long as we don’t have commodity pricing increases, wage growth is healthy, and that’s capitalism at its best like it’s supposed to be this way. If you can’t find a farmer, you pay him more.
And then we charge more for tomatoes, and that’s how the whole nation benefits from the system. And people move to industries where they can get, like we had to pay housekeepers 20 instead of 14. It’s okay. I have to pass it on. I have to get less housekeeping or more efficient housekeeping. That’s capitalism. That’s how the system works for everyone, not just the wealthy. So he’s trying to fight inflation and get people on the unemployment line, which means he has to raise unemployment. That’s different from the Fed’s goal, which is full employment. So I thought. He would also see that his actions would create a massive hole in the regional and regional banking systems, which it has. They’ve lost 800 billion where rates are, but the most prominent victim is the federal government, which is running a 33 trillion deficit.
And instead of paying 1 per cent on the debt, they have to pay 5 per cent. Five percent of our debt is 30 trillion and a half of interest expense. Last year was 700 billion. The entire defence budget, and we spend more than the following ten nations combined, which is 800 billion, and the deficit goes to the moon and beyond, and we lose control of our ability to control the deficit.
We will have a 2 trillion deficit this year, not one. Powell and the other unintended consequence is these crushed housing starts. And now, while we’re finishing this wave of multifamily Construction that started a year and a half ago before we raised rates when people thought rates would be lower longer because we listened to the guy, right?
Now housing starts to plummet, multifamily will descend, and he’ll create a more considerable housing shortage. He already did that. We needed much more housing, not fewer, but you can only build a house if people can afford a house with 7 per cent mortgages or 8 per cent mortgages. So he’s creating a long-term worse problem. Raising rates this fast will not impact us. He was just trying to kill the labour market, frankly, and kill inflation. The other thing is that the American economy differs from 50 years ago. Half our workers work for healthcare and the government. And education, those three industries are not impacted by interest rates.
In fact, in this entire 500 basis point rise, they have not lost three jobs. In 2007 and 2008, those three industries added 354,000 jobs. So half our labour force, he can’t touch. He’s just impacting the other half. If you look at the other half, Construction is his big game. Private constructions and cratering-like industries are down.
What 70%? And apartments will be down 60 to 70 per cent in 14 months. But the infrastructure bill, the government’s hiring all these people to build bridges, roads, and tunnels, and the most net losses in construction jobs are approximately zero. We lost a million construction jobs in 708. So, manufacturing lost a million jobs at 708, but only 15 million people are employed in manufacturing today.
It’s 170 million personal labor force. It takes a lot of work to impact that. Then, the only things left are services, regular business, hotels, and retail. To get people to stop spending, we must put them on the unemployment line because Americans continue spending because they’re employed. And what I missed about the economy’s strength was the scale of government spending.
It’s 3 trillion, and local governments and municipalities are spending at five times the rate they did pre-pandemic. It’s boosting GDP. But you look at the polls; everyone thinks the economy sucks. And they want to vote Biden out, even though the headline numbers are good because it’s all government spending.
So he’s created his own. So, the Fed should be focused on something other than real estate. They should be over the street, screaming at Janet Yellen and Congress to stop spending because they’re spending money. He’s trying to slow the economy with a sledgehammer, and they’ve got the pedal to the metal with all these, you know, the climate bill, the infrastructure bill, the chips act, they’re all good.
Of course, those are all worthwhile; we should have done the infrastructure bill under Trump when insurance was zero. We could have financed it with 100-year bonds at 1% instead of investing it at 5%. But so I’m pissed at Powell because I don’t think this was necessary.
And, you know, there is a sea change in lending in the market and a considerable portion of our economy is based on property and the payrolls and tax rolls of all the municipalities in all the cities and what pays for the police and, and waste management and school system and teachers are property taxes.
And to the extent he crushes the values of these properties, he’s hurting. Eventually, these governments will have to let people go. And also, you know, other things like, I won’t get into immigration policy, but that’s no good either. So, Powell, you will see inflation come down; you asked me about 24; I don’t think we’ll see six rate cuts.
And it’s not for the reason you think. First off, as long as people have jobs, they seem to be willing to spend, even though they’re maxed out on the credit cards, the, you know, consumer spending is, the American consumer is fantastic. You’ll find more things to buy he doesn’t need than any consumer in the world And has no memory. No memory. I am trying to remember. We look, we live weekend to weekend to see who’s winning the football games. We were trying to remember what happened two weekends ago. We were all into Taylor Swift, and now she’s just dating Travis Kelsey. So, we don’t talk about it anymore, but it’s like, we’re very, that’s our strength.
We’re an optimistic nation. We have no memory of it as a strength compared to many countries, the Europeans, but Powell’s job is over in January. He’s out on January 25. So, no matter who the administration is, he’s out. He wants to be someone other than the guy who lets inflation reaccelerate.
He’s going to try to make sure this thing is dead, dead, dead. So, 2% will hit May inflation; he might wait a few extra months. And if we’re waiting for the collapse of the economy. There will be a massive drop in rates as long as the government spends this much money.
We may not see a collapse in the economy. So, you know, I look at the industries that lost jobs last time, and one of them’s off-the-table Construction, you know, and on the board of one of our companies is a head of a big construction company based in Dallas. How’s business?
Fantastic. Like, how can it be great? We’re cancelling projects everywhere. But we’re all finishing what we had going on, like everyone’s spending the multifamily property. So, the construction jobs have yet to be lost. But he said, well, you know, it used to be 70 private and 30 public. And now it’s 70 public and 30 private.
And they’re keeping him busy building bridges, roads, and tunnels. If you go online, @invest.gov, you can see all the projects they have across the country. She looks like a measle wrap. There are little dots everywhere. Every state in the country in New Hampshire, which had the primary just the other day, somebody on TV said, you know, the state’s buzzing with all the bridges, roads, and tunnels.
Like, that’s why we have a problem. I was like, yes, I know. And so it’s. Powell should lower rates, which is why he should roll rates quickly. The reason is very straightforward. It’s not going to reaccelerate the economy. I don’t know what will happen to house prices because we had housing prices rise when they should have fallen. No homes were for sale because nobody could leave their old mortgage. So, the supply of homes for sale will grow and dampen inflation and houses. But a third of our debt is rolling this year. So 33 trillion, 13 trillion rolls this year.
And he can pay 5 percent on that, which is 500 billion, or 3 percent on that, which is 300 billion. A couple hundred billion goes a long way. You know, the entire Ukraine-Israel budget border thing is 100 billion. We can do two if he lowers rates to 300, 3 percent from 5%.
And somebody has got to wake up in Washington because, you know, this country would be. It would have been twice as successful if Washington didn’t exist; Washington has been an incredible hindrance to the success of America. And we love each other a lot more than they think we do. Half of our nation is independent at the moment, half, and all they talk about in the media are the Republicans and the Democrats.
And the half of us in the Middle, like, what’s up? Donald Trump has 60 per cent approval ratings in the Republican party. 60 of 25 is 15 percent of the nation. Eighty-five per cent of the people are like No Democrats, no independence. They voted 70 percent of them yesterday voted for Nikki Haley. You know, it’d be exciting.
The game is in the Middle. The problem is the two parties, all the Middle, the reason that independence has grown from 20 to 30, 50 per cent of the nation is because all the moderates have left both parties. And the parties are concentrated with extremes now on both sides. And you’ve got to appeal to the lunatics on the left and the lunatics on the right, or you won’t get the nomination.
So, and if you try to go after Trump, if you’re Republican and you go after Trump, you’re Chris Christie and that party. You get no votes. Right, and then, you know, Biden is inexplicable. I mean, my mom’s turning 90 in two weeks. She might be better off in the White House than he is.
She’s more articulate. I mean, I never thought of, well, I’ll write my mom in. She’s pretty good. I mean, she walks better than he does. She doesn’t run to flags and stuff. So, we could do better with a different set of candidates.
Chris Powers: Will we ever see you in Washington?
Barry Sternlicht: Maybe as a cabinet minister.
I won’t run for office. I would never do that to my family. What a shame.
Chris Powers: Barry, this has been a true honour. I appreciate you sitting down with me tonight.
Barry Sternlicht: Well, it was, it was cathartic.
Chris Powers: I appreciate it.
Barry Sternlicht: Yeah. Good luck. Thank you.
Chris Powers: Thanks.