Starwood’s Net Income Drops 95% Annually — and Then Its Stock Drops

Starwood Property Trust’s stock tanked hours after the firm reported its second-quarter earnings, dropping 4 percent in one morning, as the firm reported major declines in net income. 

Starwood’s stock currently trades at $15.55 per share, down 6 percent from where it traded one month ago and down nearly 20 percent from a year ago. 

The Miami Beach-based lender and investment firm reported just $6.6 million in net income in the second quarter of 2026, an 87.3 percent decline from the $51.9 million it reported in the fourth quarter of 2025 and nearly 95 percent less than the $129.8 million in net income it reported in the second quarter of 2025. Distributable earnings totaled $151.5 million in the second quarter, up from $147.3 million in the previous quarter and $151.1 million this time last year. 

Chairman and CEO Barry Sternlicht said during the firm’s second-quarter earnings call Thursday that he was “a little surprised by the stock’s reaction this morning,” and insisted the firm’s foundation and fundamentals are strong. 

“I think we’re kind of throwing the baby out with the bathwater,” said Sternlicht, who noted that analysts seem concerned about the firm’s large loan lending and mortgage business. “We look at it differently: We’re pretty confident in our ability to get back to earnings power to drive the dividend and restore coverage of our dividend.” 

He noted that, at a property level, almost every asset class in the U.S. and Europe is “in repair, everything is getting better,” and particularly singled out equity real estate investment trusts in multifamily, self-storage, senior housing and logistics as showing positive signs. 

Sternlicht noted demand across all commercial real estate sectors is high and that “nonexistent supply” is aiding investments into office, retail, logistics and multifamily.  

“You’re beginning to see improvements of rents in the multifamily sectors, which we’ve been waiting for God knows how many quarters,” he said. “Things are getting better market by market.”

Starwood reported second-quarter revenue totals of $513 million, up slightly from $512.5 million in the first quarter of 2026 and quarterly revenue of $444.28 million from this time last year. Rental income rose to $87.8 million, up from $80 million in the previous quarter and $28.2 million in the second quarter of 2025. 

On the CRE lending front, Starwood Chief Financial Officer Rina Paniry reported that Starwood originated $1.4 billion of CRE loans, of which the firm funded $754 million and $260 million of existing loan commitments. And, after factoring repayments of $447 million, the firm’s funded loan profile grew to a record $17.3 billion. Moreover, Starwood received $554 million of repayments in July, of which $170 million were for office loans. 

“Despite a volatile macro backdrop, we’ve accretively deployed a near-record $6.7 billion year-to-date,” said Jeffrey DiModica, Starwood’s president, during the firm’s earnings call. “The breadth of opportunity across our global investment platform continues to grow.”

While he noted that the third quarter of 2026 is positioned to be Starwood’s “strongest origination quarter ever,” DiModica did speak to three multifamily assets that moved to the highest possible risk rating on the quarter: a $73 million asset in Phoenix; a $63 million multifamily asset in Clearwater, Fla.; and $74 million multifamily assets in Mesa, Ariz.

“These downgrades reflect the effect of higher forward rates and broader softness in certain Sun Belt multifamily markets where elevated supply — that is mostly behind us — has put pressure on near-term cash flow,” said DiModica. He noted that Starwood has over $6 billion in multifamily loans, representing 20 percent of its balance sheet, twice as large as any other exposure. 

“We have increased occupancy and improved performance on assets we have taken back, in some cases materially, positioning us to begin exiting them as we have before in a more thoughtful way that returns the highest returns to shareholders,” he added, adding that the firm expects more than $800 million in resolutions of underperforming assets in 2026. 

In his remarks, Sternlicht expressed his frustration over the interest rate policy under new Federal Reserve Chairman Kevin Warsh. He said he “cannot fundamentally understand the Fed’s position of raising rates in this economy,” lamenting that any rate increase “won’t open up the Straits of Hormuz, it’s not going to change the price of oil in the U.S. — it will only impact the interest rate-sensitive portion of this economy.”

But Sternlicht expressed optimism about Starwood’s underlying real estate businesses, and insisted the firm will go “asset by asset” to improve performance. 

“We’ll figure out the right way to maximize shareholder value and build back our book value,” he said. “I’m actually feeling good about things. I’m looking at the future and looking at the earnings power of all these underperforming assets.” 

Brian Pascus can be reached at bpascus@commercialobserver.com.