Starwood Hires Stellar’s Pawan Melgiri to Lead New Middle Market Lending Business
By Andrew Coen February 29, 2024 8:00 am
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Starwood Property Trust has launched a new debt business targeting middle-market loan originations in response to the lending pullback from regional banks over the past year.
The Miami Beach-based firm hired Pawan Melgiri from Stellar Management to lead the new Starwood vertical, which will focus on loans in the $15 million to $50 million range — a lending size historically dominated by regional banks.
“In terms of opportunity there are the best opportunities in the middle-market and smaller loans, which have been cleared out by the regional banks, which are not lending,” Barry Sternlicht, chairman and CEO of Starwood Capital Group, said Feb. 22 during Starwood’s fourth-quarter earnings call. “There aren’t really any giant transactions being financed, and most of those deals will probably get done in the CMBS market right now.”
Melgiri spent the last nine years running debt and equity investments at New York-based Stellar. The MBA graduate of University of Pennsylvania’s Wharton School also held previous credit investing roles at Citigroup and Wells Fargo.
Jeffrey DiModica, president of Starwood Capital, told Commercial Observer the launch of the new product comes with the same diligent credit process the company uses for its typical, larger loans where full internal underwriting and asset management teams are used.
“We have this bank-like credit process that we’re not going to give up on, and we’ve decided that if we outsource certain parts of it we can do it economically,” said DiModica of Starwood’s stringent screening procedures that will be used for the new business. “We think we can earn outsized returns here because of the lack of competition from the regional banks. We can expend more resources per dollar of equity than we thought we could have previously when [the banks] were in that space. For the first time it’s now economic for us to play here, and I think it’s something we can scale to be a really big business for us.”
DiModica said the new middle-market lending business will utilize professionals from Starwood’s current roster, and the firm will also make new hires for the team as the platform begins to scale. He said the goal is to originate $500 million this year, $1 billion in 2025 and eventually turn it into a more than $2 billion-a-year business.
While 27 percent of Starwood’s loan book is in international assets, DiModica said the middle-market vertical will initially be aimed solely at U.S. investments. He stressed that new originations in terms of property sectors will try to mirror Starwood’s large loan portfolio, with constant adjustments being made based on market conditions.
“We’ve made a career pivoting between sectors,” said DiModica, noting that Starwood cut its office exposure in half while also doubling multifamily and industrial since the onset of the COVID-19 pandemic. “We pivot based on where we see the market, so it’s highly likely we’ll pivot in the same way and try to find asset classes that we really like and have durability. It should look like a microcosm of our large loan book over time.”
It’s been an exciting couple of weeks for the Starwood team. Earlier this week, it was announced that industry veteran Jonathan Pollack would be leaving his role at Blackstone to become Starwood Capital Group’s new president, as first reported by CO.
Andrew Coen can be reached at acoen@commercialobserver.com
