Starwood to Buy $503M of Performing Commercial Mortgages
Real estate investment trust (REIT) Starwood Property Trust (STWD) is buying a $503m portfolio of performing commercial mortgages from financial services firm Teachers Insurance and Annuity Association, College Retirement Equities Fund (TIAA-CREF). Starwood, which specializes in originating and investing in commercial real estate mortgages and related debt investments, said on Friday it will pay about $510m, plus accrued interest, under the terms of the agreement. The acquisitions is expected to close by the end of February 2010. "The focus of our investments is safety and yield, and this investment's high debt yield and relatively short duration should allow us to reinvest capital as the loans mature or provide a built in pipeline of originations," said Starwood CEO Barry Sternlicht, in a press statement. The fixed-rate portfolio, which has a targeted levered return between 11% and 13%, consists of 18 senior first mortgage A-notes and two junior first mortgage B-notes. Retail and office assets - about 96% occupied - across 10 states secure the notes. The portfolio bears a 17.7% weighted average debt yield, with a weighted average remaining term of 1.7 years and a weighted average coupon of 7.75%. The debt service ratio on the portfolio is approximately 1.8x. "Almost 20% of this portfolio will mature within one year and as such these assets are an extremely attractive alternative for cash," Sternlicht said. "They also can be modified, extended or rolled into new term debt and can be levered short term if, necessary." He added that, after the acquisition, Starwood will have invested about $800m of the capital raised in August. As HousingWire previously reported, the REIT raised $952m from its public and private offerings. In January, Starwood originated $107.8m in three first mortgages for hotel and retail properties and invested about $32m in single-borrower commercial mortgage-backed securities (CMBS). Write to Diana Golobay. Disclosure: The author holds no relevant investment positions.