Starwood Property Trust Shows the Way Forward for CRE in Power Gala Interview

The recent Commercial Observer Power Gala demonstrated reasons for optimism throughout today’s commercial real estate industry.

In a conversation with Commercial Observer Executive Editor Cathy Cunningham, Starwood Property Trust President and Managing Director Jeff DiModica shared several reasons for his own company’s positive outlook.

DiModica began by explaining that Starwood’s business structure has helped it prosper through challenging economic times.

“On the lending side, it’s really interesting,” said DiModica. “We set up a generational company that would outperform in times of distress. So having significantly less leverage than other mortgage REIT peers, with only 2.4 turns of leverage, and having only 10 percent of our assets on U.S. office loans has made our job easier in a really difficult environment.”

And while acknowledging the ongoing troubles in the office sector, DiModica found reasons to be hopeful there as well.

“All of the office property REITs are up 3 or 4 percent (interview was September 19^th.) , and there are some better vacancy numbers, which is a little surprising to me,” said DiModica. “I thought we wouldn’t see better vacancy numbers till early 2025. But we’re starting to see it, and people are optimistic, and we’re getting back to work and things are trading.”

DiModica noted how the CMBS market is already opening back up, mentioning several impactful deals Starwood currently has on the table.

“We have three or four big deals in the market today, and it looks like a few of them might get done,” said DiModica. “There’s a large hotel deal in Orlando and a big mall up in West Edmonton. If those deals continue to look like they’re going to price where they are, then I think we’re going to have a better fall than a lot of us expected.”

DiModica emphasized the company’s diversified portfolio as a major reason for its current success, citing “a large equity portfolio that has massive billion-and-a-half dollar-plus gains in it.” He also noted Starwood’s diversity in energy infrastructure lending, calling it “super exciting right now.”

“That’s probably the most value-add area I can invest in, plus having a special servicer, which is a positive carry credit hedge in difficult times. Those things have all been really good,” he said.

The balancing of various sectors overall, said DiModica, has positioned Starwood for a strong 2024 and beyond.

“We’ve done a really good job of bringing our office exposure down from 30-plus percent of our portfolio to 10,” said DiModica. “We grew our multifamily book, tripling it over the course of a few years. Today, we’re starting to lean away from that. I think hotels, data centers and industrial look really interesting. We’re raising a couple of third-party debt products away from Starwood Property Trust, so we’re raising more capital to be able to invest into what we think is a really good lending opportunity. To be able to lend today at 70 percent of value off of a lower value feels really good, and I think that will outperform a lot of the legacy books.