Starwood Capital Group plans to launch a new REIT program to purchase distressed loans, according to the S-11 filing on June 4. Starwood Property Trust (SPT) will draw upon the experience of Starwood Capitals investment professionals, as well as utilizing its own management group.
The Maryland-based corporation will focus primarily on originating, investing in, financing and managing commercial mortgage loans and other commercial real estate debt investments, CMBS, and other commercial real estate-related debt investments. Additional investments may include residential mortgage loans and RMBS.
Initially, the investments will be financed in commercial mortgage loans and CMBS with financings under Public-Private Investment Program (PPIP), and CMBS with the Term ABS Loan Facility (TALF), as well as through securitizations and other sources of financing in each case to the extent available.
SPT will be externally managed and advised by SPT Management an affiliate of Starwood Capital a private equity firm founded and controlled by Barry Sternlicht, CEO and chairman.
In line with the investment opportunity allocation provisions of the funds currently managed by Starwood Capital, SPT will have the right to invest from 67.5% to 90% of the capital proposed to be invested by any investment vehicle managed by an affiliate of Starwood Capital in real-estate related debt interests.
SPTs objective is to provide attractive risk adjusted returns to its investors over the long term, primarily through dividends and secondarily through capital appreciation, which is achieved by selectively acquiring target assets to construct a diversified investment portfolio. The portfolio is designed to produce attractive returns across a variety of market conditions and economic cycles. The intent is to construct a diversified investment portfolio by focusing on asset selection and the relative value of various sectors within the debt market.
SPT seeks to maximize returns for our stockholders by constructing and managing a diversified portfolio of target assets. The investment strategy includes seeking to take advantage of pricing dislocations created by distressed sellers or distressed capital structures and pursuing investments with attractive risk-reward profiles; seeking to insulate total returns with a balance of sustainable cash flow and residual value by focusing on sustainable yield; and seeking to take advantage of acquisition financing programs and subsidies provided by the U.S. government.
Additionally, SPT assimilates focusing on acquiring debt positions with implied basis at deep discounts to replacement costs and focusing on supply and demand fundamentals and pursuing investments in high population and job growth markets where demand for all real estate asset classes is most likely to be present. Finally, the plan includes targeting markets with barriers to entry other than capital and structuring transactions with an amount of leverage that reflects the risk of the underlying assets cash flow stream, attempting to match the rate and duration of the financing with the underlying assets cash flow, and hedging speculative characteristics.
Target assets include a plethora of commercial real estate investments, including whole mortgage loans, bridge loans, B notes, mezzanine loans, construction or rehabilitation loans, and all CMBS. Additionally, assets will include corporate bank debt, corporate bonds, residential mortgage loans, and RMBS.
In the near to medium term, SPT anticipates a significant opportunity to originate commercial real estate mortgage loans and other debt investments at attractive spreads and low loan-to-value assumptions and to acquire discounted loans on high quality real estate at attractive yields.
As mortgage and mezzanine loans are expected to present longer-term opportunities, SPT has incorporated these investments as foundation in their strategy. Expecting to capitalize on the financing gap by providing mortgage and mezzanine loans to proven sponsors on high-quality assets at attractive yields and reasonable loan-to-value levels, SPT intends to seek to further enhance our returns by securitizing the senior tranches of its positions to the extent that TALF financing may be available for these types of securities.
SPT also plans to acquire discounted loans from failed banks and financial institutions through the FDIC, during the next two to three years. Utilizing Starwood Capital Groups market knowledge, real estate expertise, geographic coverage and most importantly, execution speed will enable SPT to be a competitive bidder in the FDCI loan portfolio auctions. Starwood Capital Groups first sponsored fund successfully executed a similar strategy in the early 1990s by acquiring assets from the Resolution Trust Corp.
Since its inception in 1991, Starwood Capital Group (including Starwood Capital-named affiliates controlled by Sternlicht), has sponsored eleven co-mingled opportunistic funds, including two dedicated debt funds, two dedicated hotel funds and several standalone and co-investment partnerships.
As of Dec. 31, Starwood Capital Group had around $12.8 billion of directly and indirectly owned real estate assets under management. Starwood Capital Group has been a leader of public-private/private-public market executions, including the recapitalization and public offerings of NYSE-listed Starwood Hotels & Resorts Worldwide and iStar Financial and privatizations of Societe du Louvre and National Golf. It also participated in the formation of Equity Residential Properties Trust, one of the premier U.S. multifamily REITs.
