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Investments

Starwood Property Trust spins off new public REIT

REIT will take over Starwood’s single-family residential businesses

Mergers

Real estate investment fund Starwood Property Trust (STWD) plans to spin off its single-family residential business, forming a new REIT called Starwood Waypoint Residential Trust.

The company’s board of directors approved the plan this week.

The spin-off will technically be the result of a merger between Waypoint Real Estate Group and an affiliate of Starwood Capital Group known as SWAY Management. The end result will be an entity operating as Starwood Waypoint Residential Trust.

SWAY will serve as the official manager of the business unit.

Waypoint is known as a single-family operating platform that brings an integrated tech platform already equipped to easily manage underwriting, acquisitions, property management and other functions essential to the single-family rental business.

The deal is another example of how many investment groups have latched onto the idea of a robust single-family rental market. Despite a strong reported desire for homeownership among Americans, lending constrictions and uncertainty has prompted analysts to assume strong demand in the rental segment in the coming years.

The new REIT, which will now operate the single-family business of Starwood Property Trust, expects to apply to trade under the New York Stock Exchange using the ticker symbol ‘SWAY’.

By September, Starwood’s single-family residential portfolio included 5,817 single-family units and nonperforming loans with a total of $750 million in invested capital.

Starwood Property Trust took advantage of low prices during the housing downturn to buy nonperforming loans and single-family properties at discount in the target markets of Florida and Texas.

The idea is to achieve long-term total rates of return on the shareholder’s capital.

The spin-off comes with a $100 million cash contribution from Starwood Property Trust. The SWAY unit also will benefit from a $400 million line of credit.   

The plan is to eventually convert the loans and single-family homes into for-sale properties or rentals, driving returns for shareholders.

Transaction terms were not disclosed.

However, Starwood Waypoint Residential Trust is expected to become one of the largest investors, owners and operators of U.S. single-family rental homes and non-performing residential mortgages.

The combined entity will have over 570 employees and 13 offices across the nation.

"Recent third party valuation work suggests that the estimated fair value of our portfolio is between 1.10x and 1.20x our cost basis and we expect to provide updated third-party valuations (NAVs) on at least an annual basis," said Barry Sternlicht, Starwood Property Trust's chairman and chief executive officer. "Starwood Property Trust's investment in the sector has now reached critical mass. It has become a distinct business separate from our core lending platform, more closely resembling an equity play."

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