Starwood Property Trust Reports Robust Earnings, Criticizes Trump’s Tariff Policy

Starwood Property Trust ended 2024 with increased income and distributed earnings compared to 2023, as the firm leaned into a diversified investment strategy that Chairman Barry Sterlicht hopes will eventually help the firm defy the bounds of being a traditional real estate investment trust (REIT). 

“The goal of this is to not be called ‘a real estate REIT.’ We want to be thought of as a finance company in the REIT form, which is the most tax-efficient way to pay out our earnings,” said Sternlicht. “But clearly, we’re a company with multiple business lines and we’ll continue to add business lines.” 

While Starwood Property Trust is a global investment arm of Starwood Capital Group, the REIT has spun off several businesses including Starwood Mortgage Capital, multifamily investment fund Woodstar Portfolio Holdings and special servicing platform LNR. Sternlicht added the firm is looking at becoming a delegated underwriting and servicing (DUS) lender for Fannie Mae, but did not give a timeline. 

“The lending business is half of our business, 54 percent of our business, there’s no peer to that,” said Sternlicht, who added the firm employs 300 people. “We’re a company in a REIT form, and we’re trying to build a diversified credit business.”

On Thursday, Starwood Property Trust reported net income of $51.6 million in the fourth quarter, a 27 percent drop from its net income numbers for the fourth quarter of 2024, while the firm announced full-year net income of $359.9 million, an increase of 6 percent from its 2023 reported net income.  

However, this impressive income metric included a $197.4 million credit loss provision to support potentially impaired assets, and the distributable earnings on the quarter were $166.7 million, a decline of 12 percent from the fourth quarter in 2023. That said, distributable earnings rose nearly 2 percent to $675 million on the year. 

“The company really is in fantastic shape, probably the best shape it’s been in years,” said Sternlicht. “Look at the balance sheet. … We can easily borrow money and increase our leverage and increase our earnings power, and we’re going to be aggressive on our lending book.”

The firm was busy in 2024: Starwood originated or acquired $1.6 billion in assets in the fourth quarter of 2024, and $5.1 billion in the year, and raised $3.5 billion in capital in 2024, a record for the firm. Starwood originated $477 million in commercial real estate loans in the fourth quarter, and $1.7 billion total in 2024, while repayments totaled $1 billion in the fourth quarter, and $3.6 billion in 2024, according to Chief Financial Officer Rina Paniry.

Even so, Starwood continued to move away from CRE lending, Paniry said, as a full 67 percent of the firm’s investment activity in 2024 was in businesses other than commercial lending. 

“As a testament to our diverse business model, commercial real estate lending now comprises just 54 percent of the asset base,” said Paniry on Thursday’s earnings call. 

Jeff DiModica, president of Starwood Property Trust, said that the firm “ended 2024 with a flurry of capital markets transactions,” where it extended the average term on its corporate debt from two years and two months to three years and six months, and repriced or extended $1.4 billion in term loans, while also issuing high-yield, unsecured debt at the tightest floating-rate spreads in the company’s history.

“We raised almost $800 million in incremental proceeds, leaving us with significant investable firepower as we enter 2025,” said DiModica. He added that spreads have compressed across all of Starwood’s investment cylinders — CRE, CRE cap rates, commercial mortgage-backed securities, and residential loans — giving the firm “as strong a loan pipeline as we have seen in three years.”

Moreover, DiModica said that originating higher-quality, low-leverage loans at today’s lower basis will create “outsized opportunities” for Starwood in 2025. 

“We’ve already closed $1.5 billion in loans in the first quarter, and our business plan for 2025 is to write the most loans we have for any year since our inception, other than 2021, which was a record year for lenders across the board,” he said. 

While Starwood’s C-suite praised the firm’s performance in 2024, the leader of the ship was less bullish on the state of the U.S. economy as the second Trump administration settles into power. 

Sternlicht excoriated President Donald Trump’s tariff policy and said that he expects high tariffs on imports to cause inflationary macro-economic conditions in 2025.

“The windshield has never been murkier,” he said. “No one knows the effect of tariffs, or if they’ll be targeted or broad, but there’s one short-term conclusion, which is, it’s definitely inflationary.”

Sternlicht described the U.S. as having “sort of a distorted economy,” as the 10-Year Treasury has dropped below 4.3 percent, but 10 percent of the population is spending half the nation’s money, and the bottom half is simply “not participating” in the economy. 

He added that real estate stands to benefit from these conditions as construction starts are down across the board, with new construction starts down 67 percent and 70 percent in multifamily and industrial, respectively, bringing the pressure of higher rents in those asset classes. 

“It’s bullish for loans we have in place and bullish for existing assets,” said Sternlicht. “Although one of the reasons we’re so busy, and we’re talking about going back on offense, is that rates are stable.

“But it really depends on what this economy does,” he added. “Nobody really knows. Today it’s soft, two weeks ago it was a runaway freight train. Markets are confused and companies are confused.”

Brian Pascus can be reached at bpascus@commercialobserver.com