“There’s a hurricane over real estate right now,” the billionaire investor told ​​David Rubenstein, co-founder of the private equity firm The Carlyle Group, in an interview for Bloomberg Wealth taped June 28. “We’re in a category 5 hurricane, and it’s sort of a black cloud hovering over the entire industry until we get some relief or some understanding of what the Fed is going to do over the long term.”

Sternlicht, known for criticizing the Federal Reserve’s aggressive interest rate hikes over the past year, said he believes his industry is a victim of central banks’ efforts to tame inflation. He had some thoughts about how much damage the hurricane could do, and it’s not clear if he was joking.

Rising rates, the prospect of an economic downturn, and the historic collapses of several regional banks March have combined to make financing commercial real estate transactions either extremely expensive or nearly impossible, according to the industry veteran, who gave the example of Starwood reaching out to 33 banks for a loan on a small property and getting only two offers.

Starwood is one of the world’s biggest players in residential and commercial real estate, and over the past year it’s been under pressure, facing redemption requests from investors in some non-public funds and even defaulting on a $212.5 million mortgage for an Atlanta office tower earlier this month.  

Sternlicht warned that his firm isn’t alone when it comes to these issues, noting that office real estate owners, in particular, are suffering amid high vacancy rates. Two of Starwood’s biggest corporate landlord peers, Blackstone and Brookfield Asset Management, have stopped making payments on some offices with high vacancy rates amid the work-from-home trend, Bloomberg reported.

Sternlicht argued this is evidence the office sector will be split into haves and have-nots in the coming years—and many have-nots may go out of business.

“The nice buildings will stay rented and my guess is at pretty good rates. And the B and C stuff is going to be — maybe fields of grain or something. It’ll be very pretty. We’ll have all these little mid-block parks in New York City because there won’t be anything else to do with those buildings,” he said.

It’s not just Sternlicht who is worried about commercial real estate and the future of offices. Morgan Stanley has warned that the ongoing CRE crash could be worse for the sector than what was seen during the Global Financial Crisis of 2008. And Capital Economics thinks the CRE nightmare is going to be so dark that office values won’t recover until 2040.

To their point, the amount of distressed office real estate assets shot up 36% in the second quarter to $24.8 billion, according to MSCI Real Assets—the first time since 2018 that hotels or retail didn’t take the top spot for most distressed. And with an estimated $1.4 trillion in commercial real estate debt coming due by the end of 2024, some CRE execs have warned an “apocalyptical” downturn is coming as borrowers are forced to refinance amid higher interest rates.

Another banking nightmare?

If the commercial real estate sector does continue to crack, Sternlicht warned that, coupled with rising interest rates, it could spark another round of regional bank failures like was seen in March with Silicon Valley Bank and Signature Bank.

As Fortune previously reported, some experts fear a “doom loop” could develop between regional banks and the ailing commercial real estate sector, exacerbating the ongoing downturn for both. 

If consumers fear that their deposits aren’t safe at regional banks who have exposure to commercial real estate, they’re likely to head to a larger, safer bank. That, in turn, could force smaller banks to stop making CRE loans and call in their current loans in order to bolster their balance sheets. This would force CRE borrowers to sell their properties into a weak market, accelerating the ongoing downturn. And the resulting instability from all of this could lead to even more deposits being pulled from banks—and more bank failures.

In this doom loop scenario: “You could see 400 or 500 banks that could fail,” Sternlicht warned.

But when life gives you lemons…

You have to make lemonade. And Barry Sternlicht is no stranger to making lemonade.

Sternlicht, now 62, built his multibillion-dollar empire on top of a single risky bet after the savings and loan (S&L) crisis took out hundreds of banks nationwide during the ‘80s. In 1991, he started Starwood Capital Group to buy apartment buildings from the Resolution Trust Corporation, an entity made by the federal government to liquidate the assets of the failed banks from the S&L crisis. 

Just 18 months later, apartment values shot up, and Sternlicht sold the portfolio to the now late billionaire Sam Zell’s Equity Residential for a 20% stake in the company.

Now, Sternlicht believes that if more banks fail, there could be a “second RTC,” which means he may be able to wind back the clock to when he was just 31, starting Starwood, and buy up some distressed assets on sale. “They [the failed banks] will have to sell,” he said, calling it “a great opportunity.”