Starwood launches first-ever CRE CLO in $1.1B transaction

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In March, private equity firm Starwood Capital Group dove into residential mortgage securitization for the first time. Now, it’s trying its hand as a CRE CLO manager.

Through its publicly traded affiliate Starwood Property Trust (NYSE: STWD), the firm is launching its first portfolio of bridge commercial real estate loans for below-investment-grade commercial properties.

The $1.1 billion STWD 2019-FL1 consists of 21 bridge loans backing a mix of multifamily, office and retail properties. Several of the loans have funding clauses related to ongoing tenant improvement as well as payments for leasing commissions to real estate agents.

Moodys’ report the transaction include senior and pari passu participations as well as exposure to mezzanine interests.

The properties have a collective loan-to-value ratio of 124.2%, and generally low-rated assets that give the pool the equivalent of an aggregate Caa1 rating. More than 91% of the assets are interest-only during the initial and extended-loan terms, according to Moody’s.

The deal is not expected to have a ramp-up period since all the assets will be identified at the closing date; however, the transaction does include a two-year reinvestment period, allowing Starwood to add eligible loans to the pool.

The transactional structure includes a $577.5 million Class A tranche with a provisional Aaa rating from Moody’s and a coupon of 120 basis points over Libor. Moody’s is not rating the seven subordinate classes in the transaction.

Starwood Property Trust is joining in a rush of CRE CLO deals with the launch of its debut deal in the sector. In the second quarter alone, eight deals priced, totaling $4.2 billion, according to Finsight.

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