Barry Sternlicht says he will ditch employees in favor of artificial intelligence

A version of this article first appeared in the CNBC Property Play newsletter with Diana Olek. Property Play covers new and evolving opportunities for the real estate investor, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. subscription To receive future issues, directly to your inbox.

Billionaire Barry Sternlicht, Chairman and CEO of Starwood Capital Group, is a legendary and legacy real estate investor. Brendan Wallace is an entrepreneur who co-founded Fifth Wall, a venture capital firm that invests in real estate technology and real estate decarbonization. The couple first met at the gym. Now, Wallace can say that Sternlicht is his mentor — as well as an investor in “The Fifth Wall” — and Sternlicht jokes that Wallace is his coach.

Together they gave CNBC Property Play a rare glimpse into how old-fashioned commercial real estate investing has transformed into a technology-driven new world order and how this new world order is still based on lessons learned in the past.

Here are some highlights from the conversation, edited for clarity and length:

Sternlicht: We endured a fairly rapid 500 basis point increase in interest rates, and most people who were invested had to pay some price for that, whether real estate yields rose or they were not properly hedged. Your costs and expenses have gone up, sapping a lot of cash flow from assets that may have been used to repair assets. That is behind us now, and there is no doubt that interest rates are falling. …In May of next year, Jerome [Powell] I’ll be out [as Federal Reserve Chairman]No one gets this job without agreeing to lower prices.

I think they should lower interest rates. I think the inflation we’re seeing is related to tariffs. And it will continue. It may get worse in the fourth quarter, when new stocks hit shelves and tariffs can no longer be ignored.

Wallace: The rate increases that Barry mentioned, by definition affected the supporting technology, because all the technology companies, all the loss-making companies, all rerated at the same time. At the same time, demand for commercial real estate has stopped.

I would say that overlaying that was also that a big part of where real estate companies have been investing in the last four years has been around decarbonization efforts, so trying to fit into the new carbon neutrality laws… and anticipating that kind of wave of decarbonization. And I feel like I’m with [President Donald] After Trump was elected, it seemed like they got a pass into the Hall, certainly for four years.

Sternlicht: We probably have $20 billion allocated to that [the data center] space. I think it’s a different issue than you think. Most of us don’t build until we get a super-expansion lease. So we got the lease from Amazon, Microsoft, Google, and Oracle. What we are seeing now is the creditworthiness of the tenant, especially Oracle, because Oracle is doing all these deals in exchange for… [ChatGPT]Chat is an unprofitable startup that requires hundreds of billions of dollars to grow to the size it wants.

There is no doubt that AI will change the entire world and it will do so much faster than anything we have seen before, much faster than the Internet, and certainly faster than the Industrial Revolution. This is terrifying to me. I mean I’m not very satisfied. I look at… how we spend money, and what I can do with AI agents that I do with humans today, which is terrifying to people. I think we should let people go, don’t you? Jobs for 15 people can be done with a chatbot that costs me $36 a month.

Wallace: I’ve been trying to track all of these beautiful, somewhat byzantine, byzantine obligations that are happening between big tech companies, between digital infrastructure providers, and it’s actually very difficult to track who’s going to pay for them in the end, but ultimately they have to be paid for in the economy.

The only way to test whether it makes sense is if you look at the amount of AI computing that would be required to fill all the data centers that are in production or announced to be in production, and then assume that the tech companies would have to make some profits on top of that to justify that, which is not the case today, but let’s assume they have to. Take whatever margin you want, and assume that’s revenue that then flows into big language models and AI. What is the GDP percentage of the United States today if you do these calculations? My fear is that this will be equivalent to 120% of the United States’ GDP.

Sternlicht: We invest heavily in Europe actually. Not here. They did the stimulus package. They have low rates. They don’t, really, have inflation. They don’t have tariffs. It’s amazing, after coming back from Europe and the Middle East, I can buy everything in Europe cheaper than I can here now.

Wallace: New York City. People overestimate the durability of these political transitions. Within two years of Trump’s election, we were elected [Zohran] Mamdani to run New York, and I think these things are moving dialectically. In the long run, New York will be very valuable. So, if I were a betting person, and I didn’t have to make a return in the next four years, I would bet on New York.