Starwood to acquire USD503m diversified loan portfolio

Starwood Property Trust, a real estate investment trust focused on originating, investing in and financing commercial mortgage loans, has signed an agreement to acquire a USD503m portfolio of performing commercial mortgages from TIAA-CREF for approximately USD510m, plus accrued interest. 

The fixed-rate portfolio consists of 18 senior first mortgage A-notes and two junior first mortgage B-notes secured by retail and office assets totalling 4.5 million square feet across ten US states. 

The weighted average debt yield on the portfolio is 17.7 per cent with a weighted average remaining term of 1.7 years and a weighted average coupon of 7.75 per cent.  The debt service coverage ratio on the portfolio is approximately 1.8x.

The portfolio is approximately 96 per cent occupied and has expected tenant rollover of 5.7 per cent and 5.2 per cent in 2010 and 2011, respectively. 

All of the notes in the portfolio were originated prior to 2003 and the owners of the assets are predominantly publicly traded entities and well-known real estate private equity firms. 

"This is a very significant investment for our company," says Barry Sternlicht (pictured), chief executive officer of Starwood Property Trust. "With the acquisition of this high quality loan portfolio, Starwood Property Trust will have deployed approximately USD800m of the capital we initially raised in August. 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. Almost 20 per cent of this portfolio will mature within one year and as such these assets are an extremely attractive alternative for cash. They also can be modified, extended or rolled into new term debt and can be levered short term if, necessary. In total this acquisition aligns with our investment strategy and provides meaningful support to re-examine our dividend policy."

The acquisition is expected to close by the end of February 2010, subject to a delayed closing on certain of the loans.

The portfolio has a targeted levered return of between 11.0 per cent and 13.0 per cent. The company is currently in advanced discussions to implement financing in the near term.

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