Starwood Property Trust Reports $390M Q3 Loss, but Sternlicht Remains Resolute

One quarter after Barry Sternlicht’s real estate investment trust (REIT) Starwood Property Trust reported a 95 percent annual net income drop, the bottom fell out for Starwood in the third quarter of 2026. 

The Miami Beach-headquartered lender and investment firm reported a net loss of $389.7 million during  a third-quarter earnings call Friday, a significant decline from the $72.6 million in net income Starwood reported in the third quarter of 2025 and hundreds of millions of dollars less than the $6.6 million of positive net income the REIT reported just three months ago. 

Starwood’s distributable earnings in the third quarter totaled $116.8 million, less than the $151.5 million in the second quarter and less than the $148.6 million this time last year. 

Starwood Property Trust’s stock immediately dipped after the firm reported its third-quarter earnings, falling 3 percent on Friday morning, and now stands at $12.36. The stock is now down 32 percent year-to-date and has lost 52 percent of its value over the last five years. 

The principal cause for Starwood’s rocky third quarter is the massive $336.6 million credit loss provision which the firm reported, along with a $121.6 million net fair-value loss on mortgage loans. 

Sternlicht, who serves as Starwood Property Trust chairman and CEO, defined the current stock pressures as “turbulence,” but argued overall CRE fundamentals are “getting better and better” and reminded analysts on Friday’s earnings call that his firm is a $32.3 billion enterprise. 

“Our nearest, largest competitor is $17 [billion], we’re more than twice the size in equity,” said Sternlicht. “At least in the public sector, we’re still one of the biggest gorillas, and we have adequate liquidity and an incredible mix of business that will power us through this.”

Jeffrey DiModica, president of Starwood Property Trust, argued Starwood is committed to resolving legacy assets and reducing exposure to loans originated in the pre-2022 interest rate environment. The firm committed over $250 million in resolutions and is on target to resolve $800 million in deals before the year is out, he said.   

“Beyond resolving legacy assets, our other two priorities remain putting capital to work in attractive new investments and optimizing our capital structure,” said DiModica. “We made progress on all that this quarter.” 

The firm invested $3.2 billion across its platform, including $2.4 billion in commercial lending — its highest quarterly total in four years — bringing year-to-date investments to $8.2 billion, and repaid $500 million in corporate debt six months before maturity. To this end, Starwood now has $1.1 billion in liquidity. 

“The objective is to maximize recovery and recycle capital into investments that contribute to future earnings,” said DiModica. 

DiModica also spoke to the firm’s struggling stock price by noting that CRE loans are only half the firm’s assets, and that the firm has a diverse business lines, including net-lease, residential lending, special servicing, and energy infrastructure. 

“These businesses allow us to allocate capital to the opportunities we find most attractive as markets evolve,” he said. “We believe the market is assigning too little value to the earnings and diversifications provided by the other parts of our company.”

Sternlicht argued that the trillion dollar U.S. data center buildout has sucked construction workers away from improving supply across other CRE asset classes and that supply is going to come down across different parts of the market, improving the fortunes of owners, operators and investors in CRE. 

However, Starwood has hedged its bets, in this respect, as the firm’s parent company, Starwood Capital Group, closed a $10.2 billion opportunistic fund for data center investment in July. 

“[It’s a space] only the big boys can play, supply is going to come down immediately, but it won’t happen immediately,” said Sternlicht, who argued that tech stock prices and GDP should fall together in the coming months. “If that happens, rates will come down, and I think that’s going to be a very sunny day for us and the real estate property sector.”

All told, despite the turbulence his REIT is experiencing, Sternlicht remained optimistic about the CRE sector and Starwood’s portfolio.

“We’re kind of a boring sector of the market, but we are a reliable place to convert ordinary income into capital gains,” he said. “There is capital, there is dry powder, and there is interest in this asset class globally.”  

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