Starwood Property Trust is leaning into market dislocation with $4B in investments in 2026, the REIT announced along with first-quarter results Friday.
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Starwood reported $512M in total revenue and $52M in net income for the first quarter, a dip compared to the $97M in net income for the prior quarter and $112M for the same period a year prior. After describing 2025 as a transition year in February, CEO Barry Sternlicht said Friday that the REIT would continue rebalancing its portfolio amid global volatility.
“Wow, interesting world,” Sternlicht said as he began giving analysts commentary on the Q1 earnings call Friday. “I think we’d like to say that we’ve never been so excited and so terrified at the same time.”
He rattled off the war in Iran, the long-term impacts of artificial intelligence and a potential Chinese invasion of Taiwan as some of the macro concerns facing the sector. Still, he said, the commercial real estate markets were bouncing back.
“We’re going from headwinds to tailwinds,” he said. “We’re about to complete our 13th fundraising of a fund on the equity side, and there’s robust investor demand where, a year ago, they wouldn’t talk to us. That’s really a reflection of the turn in the markets.”
The REIT’s results were impacted by the ongoing optimization of its new net lease business, which it established in July with the $2.2B acquisition of Fundamental Income, and the resolution of nonperforming assets, Chief Financial Officer Rina Paniry said.
Starwood sold a multifamily property outside Atlanta for a $5M loss and foreclosed on three assets in the first quarter: a $248M mixed-use property and $27M multifamily project in Dallas and a $71M multifamily development in Phoenix.
Its nonaccrual assets include six U.S. properties, an office in Dublin and preferred equity interests totaling $750M, and the REIT has a net carrying value of $931M on 11 foreclosed assets in its portfolio.
Executives said they were working with owners to resolve the nonperforming loans, but Sternlicht said Starwood was comfortable holding on to hard assets until markets looked more supportive.
“We don’t have the need to give them away,” he said. “At the end of the day, we’re real estate guys.”
Starwood Property Trust CEO Barry Sternlicht
The mixed results beat Wall Street’s revenue expectations but missed on earnings, with two of Starwood’s five active business lines losing cash in the first quarter. Starwood’s stock was trading down more than 2% in early trading Friday.
Starwood’s property segment, which includes its direct investments in assets, posted a $3M loss. It attributed part of that to new rent caps from the federal government impacting Starwood’s Woodstar Fund, which holds 14,793 affordable housing units, leading to an 8-cent-per-share depreciation expense.
Its corporate business line, the catchall segment that also includes companywide overhead and unsecured debt, lost $167M. Starwood’s commercial and residential lending segment pulled in $153M, its infrastructure lending earned $22M, and investing and services operations earned $44M.
First-quarter investments totaled $2.5B, and the REIT has deployed another $1.5B in the months since. Starwood has $10.4B in loan capacity, with $1B in liquidity and more than $1B in corporate debt capacity.
“When we see outside opportunities like we have over the past year, we have the firepower to lean in,” President Jeffrey DiModica said. “We are expecting a very robust finish to the first half of the year, with an equally strong pipeline extending into the second half.”
Starwood joined the trend among public commercial real estate firms with $20M in stock buybacks in the first quarter, with management estimating that its public pricing includes a record $31.7B in underappreciated assets.
“We’ll continue to repurchase stock because it’s a pretty good investment for us,” Sternlicht said. “Some of our businesses are really spectacular at the moment, and they’re masking some of the noise of the less-than-spectacular parts.”
