Jeff DiModica and Dennis Schuh

It was a year of choppy waters for many on this list, but the Starwood Property Trust team already had its sea legs ready to go. 

“These times of distress are what really separate the wheat from the chaff,” Jeff DiModica said. “We always say we’re going to outperform at times of distress because we built a book for distress.” 

In 2022 alone, Starwood deployed $10.7 billion, 40 percent of which was in multifamily. Notable transactions included a $950 million loan to help fund Blackstone’s acquisition of Crown Resorts (three resort and casino properties in Melbourne, Perth and Sydney, Australia), and a $264 million acquisition loan for Madera Equity’s acquisition of a Texas multifamily portfolio.

This past year, many factors came into play in Starwood’s success. One of them was its asset management team — which had its work cut out for it. 

“I think where we really differentiated ourselves was working with sponsors through the dramatic moves in rates,” Dennis Schuh said of the volatile 12 months. “Every single loan had a SOFR cap that needed to be tweaked and adjusted, and there were lots of nuances there, so having our people in-house handling all that asset management and touching almost every loan was key.” 

“Anybody can go long on a bunch of loans, and when the market is going up they look like heroes,” DiModica said. “Well, now the tide is going out, and there’s a lot of people who don’t have bathing suits on.” (Yikes.) 

Starwood’s smooth sailing position today began with a gradual turning of the ship three years ago, well in advance of the iceberg that has since materialized out of the dark and quiet night. 

“At the beginning of COVID our portfolio was 38 percent office, and we made a very conscious decision to turn the Titanic from 38 percent down to what’s now 14 percent of our book — and it’s why we’ve massively outperformed the market,” DiModica said. “We’ve also done the hard work for 13 years to keep our leverage low — 2.3 turns of leverage, compared with four turns for many of our competitors. Because in times like this, low leverage matters a lot and it keeps us out of harm’s way.” Today, Starwood’s loan book is 33 percent multifamily. 

Going back further still, since 2009, the platform has had zero realized credit losses, Schuh said. “We actually have experienced gains,” he said. “We’ve foreclosed on a few properties, and with the expertise that we have in-house — our equity and asset management colleagues — plus our relationships with brokers, we were actually able to fix up those properties, lease them up, and sell them for a profit as opposed to losing money on them.”

As several components of the financing markets retreat or pause, Starwood is gearing up for a busy end to 2023, with the recent banking crisis only creating “a further lack of competition,” Schuh said. “This company was set up in 2009 to take advantage of the illiquidity that existed in the market, so we’re not scared of this period.” 

“With our portfolio, we have the ability — with $4 billion of unencumbered assets and a massive equity book — to create liquidity,” DiModica said. “We have 28 different repo counterparties and $8 billion of repo available to us, so we have a tremendous amount of room to be able to write loans, and we’re licking our chops for the second half of the year.” —C.C.