With its recent participation in a major commercial mortgage loan securitization, ""Starwood Property Trust, Inc."":http://www.starwoodpropertytrust.com/ is enhancing its debt-related funding. The transaction, led by ""Deutsche Bank Securities, Inc."":http://www.db.com/index_e.htm, included four first mortgage loans contributed by Starwood, which when combined carried an aggregate principal balance of $154.4 million.[IMAGE]
Starwood uses its activity in the securitization market to provide non-recourse match term funding when retaining related subordinate debt, and with the completion of the new securitization, the company gained an effective cost of funds estimated at 5.1 percent.
Generally, Starwood anticipates retention on subordinate debt investments to provide a weighted average levered return of more than 12 percent.
Three of the contributed loans total an aggregate principal balance of $130.4 million and account for $99.8 million in subordinate notes or mezzanine loans to be retained by Starwood.
Securing the debt investments are a portfolio of hotels, an assisted living facility, and an office building with a weighted average remaining maturity of 55 months and weighted average last dollar exposure loan-to-value ration of 62 percent. Little information has been released regarding the fourth contributed loan.[COLUMN_BREAK]
Starwood's established aggregate price when selling the loans into securitization approximates its hedged basis, and thus, the company expects little to no gain or loss on the deal.
Once the transaction is settled, Starwood will still have an estimated $123 million in loans targeted for securitization or sale to a third party, and the company states that its equity in the earmarked loans amounts to less than 1.7 percent of the $1.8 billion in net equity that Starwood boasts.
Barry Sternlicht, chairman and CEO of Starwood, said of the CMBS move, ""We are pleased that the high quality of our loan portfolio enabled us to complete this important CMBS market securitization despite the extreme volatility in the capital markets. The successful closing of this transaction significantly reduces the size of our mortgage loans targeted for sale and further supports our strategy of focusing on finding safe, attractive returns for our shareholders over the long-term.""
Starwood's loans intended for future securitization carry an unlevered weighted average interest rate of 5.88 percent, a weighted average debt service coverage ratio of 1.69:1, a weighted average debt yield of 11.7 percent, a weighted average last dollar exposure loan-to-value ratio of 69.5 percent, and an occupancy rate of 93.9 percent.
Each of the loans has also been previously approved for use as collateral by the GS Mortgage Securities Trust 2011-GC4 transaction, which flopped when ""Standard & Poor's"":http://www.standardandpoors.com/home/en/us yanked its rating of that and other CMBS deals.
Starwood is managed and advised externally by SPT Management, LLC, an affiliate of ""Starwood Capital Group"":http://www.starwoodcapital.com/, and the company is taxed as a real estate investment trust for U.S. federal income tax purposes.
Starwood is primarily focused on originating, financing, managing, and investing in commercial mortgage loans, as well as other commercial and residential real estate debt investments.