Thursday, February 25, 2010

TIAA-CREF to Sell $503M Diversified Loan Portfolio to Newly Formed Starwood Property Trust

February 24, 2010

Edited: Jennifer Brenner

Source: Starwood Property Trust

Starwood Property Trust, a real estate investment trust focused primarily on originating, investing in, and financing commercial mortgage loans and other commercial real estate-related debt investments, has signed a definitive agreement to acquire a $503 million portfolio of performing commercial mortgages from TIAA-CREF for approximately $510 million, plus accrued interest.

The fixed-rate portfolio consists of 18 senior first mortgage A-notes and 2 junior first mortgage B-notes (collectively, the "Loans") secured by retail and office assets totaling 4.5 million square feet across 10 states. The weighted average debt yield on the portfolio is 17.7% with a weighted average remaining term of 1.7 years and a weighted average coupon of 7.75%. The debt service coverage ratio on the portfolio is approximately 1.8x.

The portfolio is approximately 96% occupied and has expected tenant rollover of 5.7% and 5.2% 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," commented Barry Sternlicht, CEO of Starwood Property Trust. "With the acquisition of this high quality loan portfolio, Starwood Property Trust will have deployed approximately $800 million 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% 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 reexamine 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% and 13.0%. Starwood is currently in advanced discussions to implement financing in the near term.

Starwood is a newly formed company that is focused primarily on originating, investing in, financing and managing commercial mortgage loans and other commercial real estate-related debt investments. Starwood Property Trust, Inc. is externally managed and advised by SPT Management, LLC, an affiliate of Starwood Capital Group, and intends to elect to be taxed as a real estate investment trust for U.S. federal income tax purposes.