Q2 2026 Starwood Property Trust Inc Earnings Call

August 6, 2026

Operator: Greetings. Welcome to the Starwood Property Trust Q2 2026 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. Ladies and gentlemen, please stand by. The event will begin shortly. Again, we thank you for your patience. Please stand by. The event will begin shortly. Ladies and gentlemen, we apologize for the technical difficulties. Welcome to the Starwood Property Trust Q2 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Speaker #1: Greetings. Welcome to the Starwood Property Trust, second quarter, 2026, earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

Speaker #1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. Ladies and gentlemen, please stand by.

Speaker #1: The event will begin shortly. Again, we thank you for your patience. Please stand by. The event will begin shortly. Ladies and gentlemen, we apologize for the technical difficulties.

Operator: Ladies and gentlemen, we apologize for the technical difficulties. Welcome to the Starwood Property Trust Q2 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Speaker #1: Welcome to the Starwood Property Trust, second quarter, 2026, earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

Speaker #1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Speaker #1: I would now like to turn the floor over to Starwood Property Trust to begin the event.

Operator: I would now like to turn the floor over to Starwood Property Trust to begin the event.

Speaker #2: Thank you, operator. Good morning, and welcome to Starwood Property Trust earnings call. This morning, we filed our 10-Q and issued a press release with a presentation of our results.

Zach Tanenbaum: Thank you, operator. Good morning, and welcome to Starwood Property Trust earnings call. This morning, we filed our 10-Q and issued a press release with a presentation of our results, which are both available on our website and have been filed with the SEC. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are forward-looking statements, which do not guarantee future events or performance. Please refer to our 10-Q and press release for cautionary factors related to these statements. Additionally, certain non-GAAP financial measures will be discussed on this call. For reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP, please refer to our press release filed this morning.

Zachary Tanenbaum: Thank you, operator. Good morning, and welcome to Starwood Property Trust earnings call. This morning, we filed our 10-Q and issued a press release with a presentation of our results, which are both available on our website and have been filed with the SEC. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are forward-looking statements, which do not guarantee future events or performance.

Speaker #2: We are both available on our website and have been filed with the SEC. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are forward-looking statements, which do not guarantee future events or performance.

Speaker #2: Please refer to our 10-Q and press release for cautionary factors related to these statements. Additionally, certain non-GAAP financial measures will be discussed on this call.

Zachary Tanenbaum: Please refer to our 10-Q and press release for cautionary factors related to these statements. Additionally, certain non-GAAP financial measures will be discussed on this call. For reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP, please refer to our press release filed this morning.

Speaker #2: For reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP, please refer to our press release filed this morning.

Speaker #2: Joining me on the call today are Barry Sternlicht, the company's chairman and chief executive officer; Jeff DiModica, the company's president; and Rina Paniry, the company's chief financial officer.

Zach Tanenbaum: Joining me on the call today are Barry Sternlicht, the company's chairman and chief executive officer, Jeff DiModica, the company's president, and Rina Paniry, the company's chief financial officer. With that, I am now going to turn the call over to Rina.

Zachary Tanenbaum: Joining me on the call today are Barry Sternlicht, the company's chairman and chief executive officer, Jeff DiModica, the company's president, and Rina Paniry, the company's chief financial officer. With that, I am now going to turn the call over to Rina.

Speaker #2: With that, I am now going to turn the call over to Rina.

Speaker #3: Thank you, Zach, and good morning, everyone. Our distributable earnings were $152 million or $0.40 per share in the second quarter. Our results continue to reflect the carry on our non-accrual and RAO assets, and elevated cash balances—the two items which are creating the gap between our reported earnings and the true underlying earnings power of this company.

Rina Paniry: Thank you, Zach, good morning, everyone. Our distributable earnings were $152 million, or $0.40 per share in Q2. Our results continue to reflect the carry on our non-accrual and REO assets and elevated cash balances, the two items which are creating the gap between our reported earnings and the true underlying earnings power of this company. I will start my remarks by addressing both. Regarding our non-accrual and REO, we had no new non-accrual or new five-rated loans in the quarter or the year. We also had no new REO in the quarter. As our new non-accrual and REO loans have slowed, we have gained momentum in resolutions. To clarify, our definition of resolution means disposition of the asset in the case of an REO, or returning to accrual in the case of a non-accrual loan. It is not the transfer of a loan to REO.

Speaker #3: I will start my remarks by addressing both. Regarding our non-accrual and RAO, we had no new non-accrual or new five-rated loans in the quarter or the year.

Rina Paniry: Regarding our non-accrual and REO, we had no new non-accrual or new five-rated loans in the quarter or the year. We also had no new REO in the quarter. As our new non-accrual and REO loans have slowed, we have gained momentum in resolutions. To clarify, our definition of resolution means disposition of the asset in the case of an REO, or returning to accrual in the case of a non-accrual loan. It is not the transfer of a loan to REO.

Speaker #3: We also had no new RAO in the quarter. As our new non-accrual and RAO loans have slowed, we have gained momentum in resolutions. To clarify, our definition of resolution means disposition of the asset in the case of an RAO, or returning to accrual in the case of a non-accrual loan.

Speaker #3: It is not the transfer of a loan to RAO. We have a total of $706 million of reserves against our non-accrual and RAO assets.

Rina Paniry: We have a total of $706 million of reserves against our non-accrual and REO assets, after recording an increase of $30 million in the quarter due to third-party modeled macroeconomic conditions, which worsened as a result of the rise in interest rates. This consists of $485 million of CECL and $221 million of REO reserve, which translate to $1.97 per share that is already reflected in today's undepreciated book value of $18.62. As we continue our efforts to resolve these underperforming assets, we are currently under contract or in discussions to sell 3 REO assets and multiple units in our New York City residential projects. In aggregate, these sales are expected to generate cash proceeds of $148 million and resolve $195 million of assets on a DE basis and $160 million on a GAAP basis in Q3, comprising 10% of our current non-accrual and REO balance.

Speaker #3: After recording an increase of $30 million in the quarter, due to third-party-modeled macroeconomic conditions, which worsened as a result of the rise in interest rates, this consists of $485 million of CISO and $221 million of RAO reserves, which translate to $1.97 per share that is already reflected in $18.62.

Speaker #3: As we continue our efforts to resolve these underperforming assets, we are currently under contract or in discussions to sell three RAO assets and multiple units in our New York City residential project.

Rina Paniry: As we continue our efforts to resolve these underperforming assets, we are currently under contract or in discussions to sell 3 REO assets and multiple units in our New York City residential projects. In aggregate, these sales are expected to generate cash proceeds of $148 million and resolve $195 million of assets on a DE basis and $160 million on a GAAP basis in Q3, comprising 10% of our current non-accrual and REO balance.

Speaker #3: In aggregate, these sales are expected to generate cash proceeds of $148 million and resolve $195 million of assets on a DE basis and $160 million on a GAAP basis in the third quarter, comprising 10% of our current non-accrual and RAO balance.

Speaker #3: One of the three assets was re-traded recently due to rate increases. Resulting in a $12 million divergence from our GAAP mark. Absent that, our GAAP reserves were in line with the anticipated sales price, demonstrating our ability to fully resolve these assets consistent with our estimates.

Rina Paniry: One of the three assets was re-traded recently due to rate increases, resulting in a $12 million divergence from our GAAP mark. Absent that, our GAAP reserves were more in line with the anticipated sales price, demonstrating our ability to fully resolve these assets consistent with our estimates. The realized loss will flow through DE upon sale in Q3 and totals approximately $47 million for these assets. As a reminder, when assets are resolved at our carrying value, their reserve naturally progressed to DE, but the reserve is already accounted for in our book value. Reinvesting these proceeds would add approximately $0.03 to annual DE as we continue on our path to earning our dividends in our core businesses.

Speaker #3: The realized loss will flow through DE upon sale in Q3, and totals approximately $47 million for these assets. As a reminder, when assets are resolved at our carrying value, their reserves naturally progress to DE.

Rina Paniry: As a reminder, when assets are resolved at our carrying value, their reserve naturally progressed to DE, but the reserve is already accounted for in our book value. Reinvesting these proceeds would add approximately $0.03 to annual DE as we continue on our path to earning our dividends in our core businesses.

Speaker #3: But the reserve is already accounted for in our book value. Reinvesting these proceeds would add approximately $0.03 to annual DE as we continue on our path to earning our dividend in our core businesses.

Speaker #3: Our total non-accrual and RAO portfolio stands at approximately $1.9 billion on a DE basis at quarter-end, not including the $706 million of reserves that are already reflected in book value.

Rina Paniry: Our total non-accrual and REO portfolio stands at approximately $1.9 billion on a DE basis at quarter end, not including the $706 million of reserves that are already reflected in book value. Subject to market conditions, we are on track to resolve approximately $800 million or 40% of our current non-accrual and REO by year end. Regarding elevated cash balances, we were especially active in the capital markets this quarter, issuing $1.1 billion of unsecured senior notes and upsizing our Term Loan B by $275 million. Offsetting this elevated cash was our accelerated investing pace as we deployed capital of $2.5 billion across our businesses and another $1.7 billion in July, bringing year-to-date investments to $6.7 billion. I will now take you through our individual segment results, beginning with commercial and residential lending, which contributed DE of $186 million to the quarter, or $0.49 per share.

Speaker #3: Subject to market conditions, we are on track to resolve approximately $800 million or 40% of our current non-accrual and RAO by year-end. Regarding elevated cash balances, we were especially active in the capital markets this quarter, issuing $1.1 billion of unsecured senior notes and upsizing our term loan B by $275 million.

Speaker #3: Offsetting this elevated cash was our accelerated investing pace as we deployed capital of $2.5 billion across our businesses and another $1.7 billion in July, bringing year-to-date investments to $6.7 billion.

Rina Paniry: Offsetting this elevated cash was our accelerated investing pace as we deployed capital of $2.5 billion across our businesses and another $1.7 billion in July, bringing year-to-date investments to $6.7 billion. I will now take you through our individual segment results, beginning with commercial and residential lending, which contributed DE of $186 million to the quarter, or $0.49 per share.

Speaker #3: I will now take you through our individual segment results, beginning with commercial and residential lending, which contributed DE of $186 million to the quarter or 49 cents per share.

Speaker #3: In commercial lending, we originated $1.4 billion of which we funded $754 million and another $250 million of pre-existing loan commitments, for a total of over $1 billion funded in the quarter.

Rina Paniry: In commercial lending, we originated $1.4 billion, of which we funded $754 million and another $250 million of preexisting loan commitments for a total of over $1 billion funded in the quarter. After factoring in repayments of $447 million, our funded loan portfolio grew to a record $17.3 billion. We received another $554 million of repayments in July, approximately $170 million of which were office. I previously mentioned the absence of any new REO, non-accrual, or five-rated loans this quarter. Our four-rated loans increased $212 million to $2 billion, reflecting the downgrade of three multifamily loans that Jeff will speak to.

Speaker #3: After factoring in repayments of $447 million, our funded loan portfolio grew to a record $17.3 billion. We received another $554 million of repayments in July, approximately $170 million of which were office.

Speaker #3: I've previously mentioned the absence of any new RAO non-accrual or five-rated loans this quarter. Our four-rated loans increased $212 million to $2 billion reflecting the downgrade of three multifamily loans that Jeff will speak to.

Speaker #3: Turning to residential lending, our on-balance sheet loan portfolio ended the quarter at $2.4 billion, up $164 million, driven primarily by our decision to exercise the call option on one of our securitizations, moving the majority of the financing to more attractively priced repo at SOFR plus 150.

Rina Paniry: Turning to residential lending, our on-balance sheet loan portfolio ended the quarter at $2.4 billion, up $164 million, driven primarily by our decision to exercise the call option on one of our securitizations, moving the majority of the financing to more attractively priced repo at SOFR plus 150. As a result, our retained RMBS portfolio declined to $313 million at Q end. Turning to our property segment, we recognized $34 million of DE, or $0.09 per share, across our legacy and net lease portfolios. I will start with Woodstar, our Florida affordable multifamily portfolio. On 1 July, we began rolling out the new authorized HUD rent increases of 8.4% that we mentioned to you on our last call. The related earnings impact will appear in our results starting next Q.

Speaker #3: As a result, our retained RMBF portfolio declined to $313 million at quarter-end. Turning to our property segment, we recognized $34 million of DE or 9 cents per share across our legacy and net-lease portfolios.

Rina Paniry: Turning to our property segment, we recognized $34 million of DE, or $0.09 per share, across our legacy and net lease portfolios. I will start with Woodstar, our Florida affordable multifamily portfolio. On 1 July, we began rolling out the new authorized HUD rent increases of 8.4% that we mentioned to you on our last call. The related earnings impact will appear in our results starting next Q.

Speaker #3: I will start with Woodstar, our Florida affordable multifamily portfolio. On July 1st, we began rolling out the new authorized HUD rent increases of 8.4% that we mentioned to you on our last call.

Speaker #3: The related earnings impact will appear in our results starting next quarter. The discount to market-rate rents across the portfolio is 38% on average, which should ensure continued high occupancy and allow us to push through most of these rent increases.

Rina Paniry: The discount to market rate rents across the portfolio is 38% on average, which should ensure continued high occupancy and allow us to push through most of these rent increases. Also in Woodstar, we have $416 million of Woodstar debt maturing over the next six months that we are currently working to refinance. Given the appreciation and NOI growth in this portfolio, we are anticipating an upsize of approximately $140 million at attractive spreads, our $110 million share of which can be reinvested to increase future earnings. In net lease, where DE increased to $0.05 from $0.03 last Q, we closed $179 million of purchases in the quarter at a blended cap rate of 7.39%, bringing our total post-acquisition purchases to $532 million at a blended 7.45% cap rate.

Speaker #3: Also in Woodstar, we have $416 million of Woodstar debt maturing over the next six months that we are currently the appreciation and NOI growth in this portfolio, we are anticipating an upsize of approximately $140 million at attractive spreads or $110 million share of which can be reinvested to increase future earnings.

Rina Paniry: Given the appreciation and NOI growth in this portfolio, we are anticipating an upsize of approximately $140 million at attractive spreads, our $110 million share of which can be reinvested to increase future earnings. In net lease, where DE increased to $0.05 from $0.03 last Q, we closed $179 million of purchases in the quarter at a blended cap rate of 7.39%, bringing our total post-acquisition purchases to $532 million at a blended 7.45% cap rate.

Speaker #3: In net-lease, where DE increased to 5 cents from 3 cents last quarter, we closed $179 million of purchases in the quarter at a blended cap rate of 7.39%, bringing our total post-acquisition purchases to $532 million at a blended 7.45% cap rate.

Speaker #3: The portfolio now stands at $2.7 billion, comprising $527 properties across 44 states, a weighted average lease term of 16.8 years, average annual rent escalations of 2.3%, and 100% occupancy, with zero defaults.

Rina Paniry: The portfolio now stands at $2.7 billion, comprising 527 properties across 44 states, a weighted average lease term of 16.8 years, average annual rent escalations of 2.3%, and 100% occupancy with zero defaults. Included in our balance at 30 June are $91 million of built-to-suit projects still under construction, with $65 million of incremental cost to complete. All of these projects are subject to executed leases. Upon completion of construction, these leases will add $9.9 million of annual base rent to revenue. We continue to optimize this platform's capital structure, completing another ABS transaction after Q end, our third securitization since acquiring the platform a year ago. The ABS financing totaled $321 million at a weighted average fixed rate of 5.47%.

Speaker #3: Included in our balance at June 30th are $91 million of bill-to-suit projects still under construction, with 65 million of incremental costs to complete. All of these projects are subject to executed leases.

Rina Paniry: All of these projects are subject to executed leases. Upon completion of construction, these leases will add $9.9 million of annual base rent to revenue. We continue to optimize this platform's capital structure, completing another ABS transaction after Q end, our third securitization since acquiring the platform a year ago. The ABS financing totaled $321 million at a weighted average fixed rate of 5.47%.

Speaker #3: Upon completion of construction, these leases will add $9.9 million of annual base rent to revenue. We continue to optimize this platform's capital structure completing another ABS transaction after quarter-end, our third securitization since acquiring the platform a year ago.

Speaker #3: The ABS financing totaled $321 million at a weighted average fixed rate of 5.47%. With our continued optimization of the capital structure, our first year of rent escalations in place, and our investing pace, we continue to build toward the earnings power embedded in this platform.

Rina Paniry: With our continued optimization of the capital structure, our first year of rent escalations in place, and our investing pace, we continue to build toward the earnings power embedded in this platform. Concluding my business segment discussion is our investing and servicing segment, which contributed DE of $42 million, or $0.11 per share, to the quarter. Special servicing fees were $20 million this quarter, with the decline from last quarter due to timing of resolutions. Our conduit, Starwood Mortgage Capital, securitized $320 million of loans, more than double last quarter's volume, at profit margins that were in line with historic levels. I will conclude with a comment on this segment's REO equity portfolio, which now has just five assets remaining. We sold one asset during the quarter for a DE gain of $2 million. Turning to liquidity and capitalization, our current liquidity stands at $1.2 billion.

Speaker #3: Concluding my business segment discussion is our investing and servicing segment, which contributed DE of $42 million or 11 cents per share to the quarter.

Speaker #3: Special servicing fees were $20 million this quarter with the decline from last quarter, due to timing of resolutions. Our conduit Starwood Mortgage Capital securitized $320 million of loans, more than double last quarter's volume, at profit margins that were in line with historic levels.

Rina Paniry: Our conduit, Starwood Mortgage Capital, securitized $320 million of loans, more than double last quarter's volume, at profit margins that were in line with historic levels. I will conclude with a comment on this segment's REO equity portfolio, which now has just five assets remaining. We sold one asset during the quarter for a DE gain of $2 million. Turning to liquidity and capitalization, our current liquidity stands at $1.2 billion.

Speaker #3: I will conclude with a comment on this segment's RAO equity portfolio, which now has just five assets remaining. We sold one asset during the quarter for a DE gain of $2 million.

Speaker #3: Turning to liquidity and capitalization, our current liquidity stands at $1.2 billion. This does not include liquidity that could be generated from cash-out refinancing, sales of assets in our property segment, direct leveraging, or expected proceeds from RAO sales, which, as I've mentioned, could be relatively material.

Rina Paniry: This does not include liquidity that could be generated from cash-out refinancing, sales of assets in our property segment, direct leveraging, or expected proceeds from REO sales, which as I've mentioned, could be relatively material. Jeff will discuss the capital markets transactions we completed in the quarter. There is one item I would like to highlight regarding the early redemption of our $500 million January 2027 unsecured debt, which was subject to an interest rate hedge. In order to minimize interest rate risk, our policy is to hedge floating rate assets with floating rate liabilities and fixed rate assets with fixed rate liabilities. When we issued these notes in 2022 to a fixed coupon, we entered into a receive-fixed, pay-floating interest rate hedge to lock in SOFR plus 295 as a financing cost. In connection with the early redemption, we unwound the hedge.

Speaker #3: Jeff will discuss the capital markets transactions we completed in the quarter. There is one item I would like to highlight regarding the early redemption of our $500 million January 2027 unsecured debt, which was subject to an interest rate hedge.

Speaker #3: In order to minimize interest rate risk, our policy is to hedge floating-rate assets with floating-rate liabilities and fixed-rate assets with fixed-rate liabilities. When we issued these notes in 2022 to a fixed coupon, we entered into a receive fixed pay floating interest rate hedge to lock in SOFR plus 295 as a financing cost.

Rina Paniry: In order to minimize interest rate risk, our policy is to hedge floating rate assets with floating rate liabilities and fixed rate assets with fixed rate liabilities. When we issued these notes in 2022 to a fixed coupon, we entered into a receive-fixed, pay-floating interest rate hedge to lock in SOFR plus 295 as a financing cost. In connection with the early redemption, we unwound the hedge.

Speaker #3: In connection with the early redemption, we unwound the hedge. Due to higher interest rates today, this resulted in a loss on early extinguishment of debt of 6.3 million which will be reflected in both gap and DE in the third quarter.

Rina Paniry: Due to higher interest rates today, this resulted in a loss on early extinguishment of debt of $6.3 million, which will be reflected in both GAAP and DE in Q3. The amount represents the present value of receiving the below-market fixed rate through maturity. It is the one-time cost of retiring an above current market SOFR plus 295 obligation, replacing it with five and seven-eighths paper, which if issued today, would be 6.5% to 6.75%, saving us over $15 million over the next five years. We continue to operate at conservative leverage levels, ending the quarter at a debt to undepreciated equity ratio of 2.74 times. Our unencumbered asset pool stands at $6.9 billion against $4.5 billion of unsecured debt, a coverage ratio of 1.5 times.

Speaker #3: The amount represents the present value of receiving the below-market fixed rate through maturity. It is the one-time cost of retiring and above current market SOFR plus 295 obligation and replacing it with 5.78 paper which, if issued today, would be 6.5% to 6.75%, saving us over $15 million over the next five years.

Speaker #3: We continue to operate at conservative leverage levels, ending the quarter at a debt-to-underappreciated equity ratio of 2.74 times. Our unencumbered asset pool stands at 6.9 billion dollars against 4.5 billion of unsecured debt a coverage ratio of 1.5 times.

Rina Paniry: We continue to operate at conservative leverage levels, ending the quarter at a debt to undepreciated equity ratio of 2.74 times. Our unencumbered asset pool stands at $6.9 billion against $4.5 billion of unsecured debt, a coverage ratio of 1.5 times.

Speaker #3: And finally, this morning, I wanted to conclude with a few remarks on the recognition we received this quarter by the rating agencies and NAREIT.

Rina Paniry: Finally this morning, I wanted to conclude with a few remarks on the recognition we received this quarter by the rating agencies and Nareit. During the quarter, both Fitch and Moody's affirmed our ratings at double B plus and BA2 respectively, collectively recognizing our diversity, leverage profile, liquidity position, stable earnings, and credit track record as key elements supporting our ratings. We were also once again awarded the Nareit Gold Investor CARE Award, an award given to one company in each industry which recognizes communications and reporting excellence. This is our 10th time receiving the award in the mortgage REIT category in the last 12 years, exemplifying our long-term commitment to both our stakeholders and transparent financial reporting. We are honored to once again be recognized by Nareit for this award. With that, I will now turn the call over to Jeff.

Speaker #3: During the quarter, both Fitch and Moody's affirmed our ratings at BB plus and BA2 respectively, collectively recognizing our diversity, leverage profile, liquidity position, stable earnings, and credit track record as key elements supporting our rating.

Speaker #3: We were also once again awarded the NAREIT Gold Investor Care Award, an award given to one company in each industry which recognizes communications and reporting excellence.

Speaker #3: This is our 10th time receiving the award in the mortgage rate category in the last 12 years. Exemplifying our long-term commitment to both our stakeholders and transparent financial reporting.

Rina Paniry: This is our 10th time receiving the award in the mortgage REIT category in the last 12 years, exemplifying our long-term commitment to both our stakeholders and transparent financial reporting. We are honored to once again be recognized by Nareit for this award. With that, I will now turn the call over to Jeff.

Speaker #3: We are honored to once again be recognized by NAREIT for this award. With that, I will now turn the call over to Jeff.

Speaker #1: Thanks, Rina. And good morning, everyone. Despite a volatile macro backdrop, we've accretively deployed a near-record 6.7 billion dollars year to date. The breadth of opportunity across our global platform continues to grow.

Jeff DiModica: Thanks, Rina, and good morning, everyone. Despite a volatile macro backdrop, we've accretively deployed a near record $6.7 billion year to date. The breadth of opportunity across our global platform continues to grow. Higher rates have been partially offset by tighter credit spreads and activity has remained robust. CMBS issuance is tracking near multi-year highs. CRE transaction volumes continue to recover gradually but steadily. The breadth of opportunity across our global investment platform remains as active as it has been since 2021. We have strong pipelines across our businesses and across continents. We are on pace for a record year of investment activity across our cylinders, supporting the continued growth of our portfolio. In volatile markets, investors have the opportunity to step back and examine the effectiveness of different business models. Our company has consistently outperformed in times of stress over our 17 years.

Jeffrey DiModica: Thanks, Rina, and good morning, everyone. Despite a volatile macro backdrop, we've accretively deployed a near record $6.7 billion year to date. The breadth of opportunity across our global platform continues to grow. Higher rates have been partially offset by tighter credit spreads and activity has remained robust. CMBS issuance is tracking near multi-year highs. CRE transaction volumes continue to recover gradually but steadily.

Speaker #1: Higher rates have been partially offset by tighter credit spreads and activity has remained robust. CMBS issuance is tracking near multi-year highs and CRE transaction volumes continue to recover gradually but steadily.

Speaker #1: The breadth of opportunity across our global investment platform remains as active as it has been since 2021. We have strong pipelines across our businesses and across continents, and we are on pace for a record year of investment activity across our cylinders, supporting the continued growth of our portfolio.

Jeffrey DiModica: The breadth of opportunity across our global investment platform remains as active as it has been since 2021. We have strong pipelines across our businesses and across continents. We are on pace for a record year of investment activity across our cylinders, supporting the continued growth of our portfolio. In volatile markets, investors have the opportunity to step back and examine the effectiveness of different business models. Our company has consistently outperformed in times of stress over our 17 years.

Speaker #1: In volatile markets, investors have the opportunity to step back and examine the effectiveness of different business models. Our company has consistently outperformed in times of stress over our 17 years.

Speaker #1: We have said repeatedly that we built and diversified this company to operate through cycles and across macro environments. In the last five months, have tested that thesis.

Jeff DiModica: We have said repeatedly that we built and diversified this company to operate through cycles and across macro environments. The last five months have tested that thesis. Our unique, diversified business model with only half our revenue coming from CRE lending has again absorbed this volatility. We see improving conditions in commercial real estate with higher absorption, less supply, and more transaction activity. Our lack of credit migration and outlook again showcase the durability of the platform we have constructed. In our commercial lending segment, our best-in-class financing and access to liquidity, which I will discuss more later, have allowed us to deploy near record amounts of capital this year. Q3 looks to be our strongest origination quarter, reflecting the strength of our global origination platform in further diversifying our business.

Jeffrey DiModica: We have said repeatedly that we built and diversified this company to operate through cycles and across macro environments. The last five months have tested that thesis. Our unique, diversified business model with only half our revenue coming from CRE lending has again absorbed this volatility. We see improving conditions in commercial real estate with higher absorption, less supply, and more transaction activity.

Speaker #1: Our unique diversified business model with only half our revenue coming from CRE lending has again absorbed this volatility. We see improving conditions in commercial real estate with higher absorption, less supply, and more transaction activity.

Speaker #1: Our lack of credit migration and outlook again showcase the durability of the platform we have constructed. In our commercial lending segment, our best-in-class financing and access to liquidity, which I will discuss more later, have allowed us to deploy near-record amounts of capital this year.

Jeffrey DiModica: Our lack of credit migration and outlook again showcase the durability of the platform we have constructed. In our commercial lending segment, our best-in-class financing and access to liquidity, which I will discuss more later, have allowed us to deploy near record amounts of capital this year. Q3 looks to be our strongest origination quarter, reflecting the strength of our global origination platform in further diversifying our business.

Speaker #1: The third quarter looks to be our strongest origination quarter, reflecting the strength of our global origination platform and further diversifying our business. Despite the leveling off of credit deteriorated loans, as Rina mentioned, we did have three multifamily loans move to a four-risk rating during the quarter.

Jeff DiModica: Despite the leveling off of credit deteriorated loans, as Rina mentioned, we did have three multifamily loans move to a four risk rating during the quarter. A $73 million multifamily asset in Phoenix, Arizona, a $63 million multifamily asset in Clearwater, Florida, and a $74 million multifamily asset in Mesa, Arizona. These downgrades reflect the effect of higher forward rates I mentioned and broader softness in certain Sun Belt multifamily markets where elevated supply that is mostly behind us has put pressure on near-term cash flow. We have over $6 billion in multifamily loans, representing 20% of our balance sheet and more than twice as large as any other exposure. Despite this being our largest asset class, it is a relatively low percentage of our reserves.

Jeffrey DiModica: Despite the leveling off of credit deteriorated loans, as Rina mentioned, we did have three multifamily loans move to a four risk rating during the quarter. A $73 million multifamily asset in Phoenix, Arizona, a $63 million multifamily asset in Clearwater, Florida, and a $74 million multifamily asset in Mesa, Arizona.

Speaker #1: A $73 million multifamily asset in Phoenix, Arizona, a $63 million multifamily asset in Clearwater, Florida, and a $74 million multifamily asset in Mesa, Arizona.

Speaker #1: These downgrades reflect the effect of higher forward rates I mentioned and broader softness in certain Sunbelt multifamily markets where elevated supply that is mostly behind us has put pressure on near-term cash flow.

Jeffrey DiModica: These downgrades reflect the effect of higher forward rates I mentioned and broader softness in certain Sun Belt multifamily markets where elevated supply that is mostly behind us has put pressure on near-term cash flow. We have over $6 billion in multifamily loans, representing 20% of our balance sheet and more than twice as large as any other exposure. Despite this being our largest asset class, it is a relatively low percentage of our reserves.

Speaker #1: We have over $6 billion in multifamily loans, representing 20% of our balance sheet, and more than twice as large as any other exposure. Despite this being our largest asset class, it is a relatively low percentage of our reserves.

Speaker #1: We have increased occupancy, and improved performance on assets we have taken back, in some cases materially, positioning us to begin exiting them as we have before, in a more thoughtful way that returns the highest return to shareholders.

Jeff DiModica: We have increased occupancy and improved performance on assets we have taken back, in some cases materially, positioning us to begin exiting them as we have before in a more thoughtful way that returns the highest return to shareholders. As Rina said, we expect over $800 million of resolutions in H2 2026, with the majority coming from REO sales on multifamily assets under PSA or actively being marketed, the redeployment of which will generate DE for shareholders. In addition to the REO sales Rina mentioned, I want to point out a few additional positive credit outcomes in the quarter. We had previously told you about a $300 million office building in Brooklyn.

Jeffrey DiModica: We have increased occupancy and improved performance on assets we have taken back, in some cases materially, positioning us to begin exiting them as we have before in a more thoughtful way that returns the highest return to shareholders.

Speaker #1: As Rina said, we expect over $800 million of resolutions in the second half of 2026, with the majority coming from REO sales on multifamily assets under PSA or actively being marketed.

Jeffrey DiModica: As Rina said, we expect over $800 million of resolutions in H2 2026, with the majority coming from REO sales on multifamily assets under PSA or actively being marketed, the redeployment of which will generate DE for shareholders. In addition to the REO sales Rina mentioned, I want to point out a few additional positive credit outcomes in the quarter. We had previously told you about a $300 million office building in Brooklyn.

Speaker #1: The redeployment of which will generate DE for shareholders. In addition to the REO sales Rina mentioned, I want to point out a few additional positive credit outcomes in the quarter.

Speaker #1: We had previously told you about a $300 million office building in Brooklyn. During the quarter, the borrower signed the third and final lease for 32 years to a credit tenant, bringing the building to 100% occupancy with 30 years of WALT, allowing the remaining portion of the loan to return to accrual status and putting the borrower in a position to refinance or sell the property.

Jeff DiModica: During the quarter, the borrower signed the third and final lease for 32 years to a credit tenant, bringing the building to 100% occupancy with 30 years of WALT, allowing the remaining portion of the loan to return to accrual status and putting the borrower in a position to refinance or sell the property. Subsequent to quarter-end, two office loans repaid at par for $171 million in total, reducing our office exposure in the US to just 7.6% of our assets, and globally to 8.9% of our assets, both the lowest in our company's history and an important indicator of lower potential losses. Turning to our Infrastructure Lending Segment. In the quarter, we committed $441 million at returns consistent with historic levels. After similar size repayments, the portfolio ended the quarter at $3.1 billion.

Jeffrey DiModica: During the quarter, the borrower signed the third and final lease for 32 years to a credit tenant, bringing the building to 100% occupancy with 30 years of WALT, allowing the remaining portion of the loan to return to accrual status and putting the borrower in a position to refinance or sell the property.

Speaker #1: Subsequent to quarter end, two office loans repaid at par for $171 million in total, reducing our office exposure in the US to just $7.6% of our assets, and globally to $8.9% of our assets, both the lowest in our company's history and an important indicator of lower potential losses.

Jeffrey DiModica: Subsequent to quarter-end, two office loans repaid at par for $171 million in total, reducing our office exposure in the US to just 7.6% of our assets, and globally to 8.9% of our assets, both the lowest in our company's history and an important indicator of lower potential losses. Turning to our Infrastructure Lending Segment. In the quarter, we committed $441 million at returns consistent with historic levels. After similar size repayments, the portfolio ended the quarter at $3.1 billion.

Speaker #1: Turning to our infrastructure lending segment, in the quarter we committed $441 million at returns consistent with historic levels. After similar size repayments, the portfolio ended the quarter at $3.1 billion.

Speaker #1: With the pricing of our seventh Fifth CLO this year, our infrastructure loans benefit from term, non-mark-to-market financing on $75% of our assets, reducing funding volatility and improving our overall cost of capital in the segment.

Jeff DiModica: With the pricing of our seventy-fifth CLO this year, our infrastructure loans benefit from term non-mark-to-market financing on 75% of our assets, reducing funding volatility and improving our overall cost of capital in the segment. The SIF loan portfolio benefits from outstanding credit quality. 92% of the portfolio is rated 1 or 2 by our internal review process. It has been 10 quarters since we downgraded a credit to watchlist status, and our portfolio today only has one watchlist credit with a $16 million in market value. 97% of our loans benefit from public or private Moody's credit ratings, and two-thirds of those loans are rated Ba3 or higher. The risk-adjusted returns on this portfolio add tremendous value to shareholders. Additionally, we acquired an asset in our Infrastructure Lending Business via a debt for equity swap on a defaulted loan in 2019.

Jeffrey DiModica: With the pricing of our seventy-fifth CLO this year, our infrastructure loans benefit from term non-mark-to-market financing on 75% of our assets, reducing funding volatility and improving our overall cost of capital in the segment. The SIF loan portfolio benefits from outstanding credit quality. 92% of the portfolio is rated 1 or 2 by our internal review process.

Speaker #1: The SIF loan portfolio benefits from outstanding credit quality. 92% of the portfolio is rated one or two by our internal review process. It has been 10 quarters since we downgraded a credit to watchlists status and our portfolio today only has one watchlist credit, with a $16 million in market value.

Jeffrey DiModica: It has been 10 quarters since we downgraded a credit to watchlist status, and our portfolio today only has one watchlist credit with a $16 million in market value. 97% of our loans benefit from public or private Moody's credit ratings, and two-thirds of those loans are rated Ba3 or higher. The risk-adjusted returns on this portfolio add tremendous value to shareholders. Additionally, we acquired an asset in our Infrastructure Lending Business via a debt for equity swap on a defaulted loan in 2019.

Speaker #1: 97% of our loans benefit from public or private Moody's credit ratings and two-thirds of those loans are rated BA3 or higher, the risk-adjusted returns on this portfolio add tremendous value to shareholders.

Speaker #1: Additionally, we acquired an asset in our infrastructure lending business via a debt-for-equity swap on a defaulted loan in 2019. As part owner of the asset today, we are under contract to sell it in the second half for a material gain to DE and book value.

Jeff DiModica: As part owner of the asset today, we are under contract to sell it in H2 for a material gain to DE and book value. We will tell you more about it in the coming quarter or two once consummated. In our Property Segment, our 1200 K Street office to multifamily conversion received residential conversion permits in June, and we have completed demolition and started construction in a market where we have seen Class A rents rise significantly since beginning this conversion process, which we expect to complete in 2028. In our Investing and Servicing Segment, our active special servicing portfolio, a key indicator for us on the future segment profitability, increased by $1 billion in the quarter to $10.9 billion with new SASB transfers totaling $1.3 billion coming in.

Jeffrey DiModica: As part owner of the asset today, we are under contract to sell it in H2 for a material gain to DE and book value. We will tell you more about it in the coming quarter or two once consummated.

Speaker #1: We will tell you more about it in the coming quarter or two once consummated. In our property segment, our $1,200 K-Street office to multifamily conversion received residential conversion permits in June, and we have completed demolition and started construction in a market where we have seen class A rents rise significantly since beginning this conversion process, which we expect to complete in 2028.

Jeffrey DiModica: In our Property Segment, our 1200 K Street office to multifamily conversion received residential conversion permits in June, and we have completed demolition and started construction in a market where we have seen Class A rents rise significantly since beginning this conversion process, which we expect to complete in 2028. In our Investing and Servicing Segment, our active special servicing portfolio, a key indicator for us on the future segment profitability, increased by $1 billion in the quarter to $10.9 billion with new SASB transfers totaling $1.3 billion coming in.

Speaker #1: In our investing and servicing segment, our active special servicing portfolio, a key indicator for us on the future segment profitability, increased by $1 billion in the quarter to $10.9 billion, with new SASB transfers totaling $1.3 billion coming in.

Speaker #1: Our named servicing portfolio stands at 93.6 billion and is the pipeline that will increase our active special servicing portfolio over time. I also want to recognize Adam Belman, the head of REIS and our SMC conduit lending businesses.

Jeff DiModica: Our named servicing portfolio stands at $93.6 billion and is the pipeline that will increase our active special servicing portfolio over time. I also want to recognize Adam Behlman, the head of REIS in our SMC conduit lending businesses. Adam was recognized by CREFC as the recipient of the prestigious Founders Award, and we want to congratulate him on this well-deserved recognition for his leadership of our REIS business. Congratulations, Adam. I want to finish with our capital markets activity because I believe it's one of the most important stories of this quarter and the last 18 months, and one that I think is underappreciated by the market. In Q2 alone, we executed $2.1 billion of corporate debt transactions, including $1.1 billion in senior unsecured notes that were the tightest priced financial sector unsecured notes of 2026 for a high-yield bond issuer.

Jeffrey DiModica: Our named servicing portfolio stands at $93.6 billion and is the pipeline that will increase our active special servicing portfolio over time. I also want to recognize Adam Behlman, the head of REIS in our SMC conduit lending businesses. Adam was recognized by CREFC as the recipient of the prestigious Founders Award, and we want to congratulate him on this well-deserved recognition for his leadership of our REIS business. Congratulations, Adam.

Speaker #1: Adam was recognized by Crest C as the recipient of the prestigious Founders Award and we want to congratulate him on this well-deserved recognition for his leadership of our REIS business.

Speaker #1: Congratulations, Adam. I want to finish with our capital markets activity. Because I believe it's one of the most important stories of this quarter and the last 18 months.

Jeffrey DiModica: I want to finish with our capital markets activity because I believe it's one of the most important stories of this quarter and the last 18 months, and one that I think is underappreciated by the market. In Q2 alone, we executed $2.1 billion of corporate debt transactions, including $1.1 billion in senior unsecured notes that were the tightest priced financial sector unsecured notes of 2026 for a high-yield bond issuer.

Speaker #1: And one that I think is underappreciated by the market. In the second quarter alone, we executed $2.1 billion of corporate debt transactions, including $1.1 billion in senior unsecured notes that were the tightest priced financial sector unsecured notes of 2026 for a high-yield bond issuer.

Speaker #1: $600 million that was swapped to SOFR plus 222, and $500 million at five and seven-eighths percent fixed. We also executed a $275 million term loan B upsize and a repricing of our $696 million existing term loan to SOFR plus 200, which was $25 basis points inside our prior pricing.

Jeff DiModica: $600 million that was swapped to SOFR plus 222, and $500 million at 5.78% fixed. We also executed a $275 million Term Loan B upsize and a repricing of our $696 million existing Term Loan to SOFR plus 200, which was 25 basis points inside our prior pricing. Subsequent to quarter-end, we repaid $400 million of maturing July 2026 high-yield notes and early prepaid $500 million of our January 2027 high-yield notes, as Rina mentioned. We don't have any more corporate debt maturities until July 2027. Importantly, these transactions extended our weighted average corporate debt maturities significantly to 3.7 years, nearly double what it was before the $6 billion plus of capital markets transactions we've executed in the last 18 months. We also reduced the weighted average spread of our debt.

Jeffrey DiModica: $600 million that was swapped to SOFR plus 222, and $500 million at 5.78% fixed. We also executed a $275 million Term Loan B upsize and a repricing of our $696 million existing Term Loan to SOFR plus 200, which was 25 basis points inside our prior pricing. Subsequent to quarter-end, we repaid $400 million of maturing July 2026 high-yield notes and early prepaid $500 million of our January 2027 high-yield notes, as Rina mentioned. We don't have any more corporate debt maturities until July 2027.

Speaker #1: Subsequent to quarter end, we repaid $400 million of maturing July 2026 high-yield notes and early prepaid $500 million of our January 2027 high-yield notes as Rina mentioned.

Speaker #1: We don't have any more corporate debt maturities until July 2027. Importantly, these transactions extended our weighted average corporate debt maturities significantly to 3.7 years, nearly double what it was before the $6 billion plus of capital markets transactions we've executed in the last 18 months.

Jeffrey DiModica: Importantly, these transactions extended our weighted average corporate debt maturities significantly to 3.7 years, nearly double what it was before the $6 billion plus of capital markets transactions we've executed in the last 18 months. We also reduced the weighted average spread of our debt.

Speaker #1: While we also reduced the weighted average spread of our debt. Finally, as Rina mentioned, Fitch and Moody's both affirmed our credit ratings in the quarter, a signal of the institutional confidence in this platform that underpins our ability to access capital at the lowest financial services spreads in the high-yield market.

Jeff DiModica: As Rina mentioned, Fitch and Moody's both affirmed our credit ratings in the quarter, a signal of the institutional confidence in this platform that underpins our ability to access capital at the lowest financial services spreads in the high-yield market. We repurchased $30 million of our $400 million approved stock buyback year-to-date. Management and the board own over $350 million of stock alongside our shareholders, more than all our peers combined. Our investing pipeline is robust, and we believe in the long-term value of this platform and are confident in our earnings trajectory over time. We have been telling you for years that access to capital at scale is one of our defining competitive advantages, and this quarter is a concrete demonstration of that. We are not a pure play mortgage REIT and are in fact only half a mortgage REIT.

Jeffrey DiModica: As Rina mentioned, Fitch and Moody's both affirmed our credit ratings in the quarter, a signal of the institutional confidence in this platform that underpins our ability to access capital at the lowest financial services spreads in the high-yield market. We repurchased $30 million of our $400 million approved stock buyback year-to-date. Management and the board own over $350 million of stock alongside our shareholders, more than all our peers combined.

Speaker #1: We have repurchased $30 million of our $400 million approved stock buyback year-to-date. Management and the board own over $350 million of stock alongside our shareholders, more than all our peers combined.

Speaker #1: Our investing pipeline is robust, and we believe in the long-term value of this platform and are confident in our earnings trajectory over time. We have been telling you for years that access to capital at scale is one of our defining competitive advantages, and this quarter is a concrete demonstration of that.

Jeffrey DiModica: Our investing pipeline is robust, and we believe in the long-term value of this platform and are confident in our earnings trajectory over time. We have been telling you for years that access to capital at scale is one of our defining competitive advantages, and this quarter is a concrete demonstration of that. We are not a pure play mortgage REIT and are in fact only half a mortgage REIT.

Speaker #1: We are not a pure play mortgage REIT, and our in fact, only half a mortgage REIT. This is why our results and trajectory are different.

Jeff DiModica: This is why our results and trajectory are different. We are a diversified finance company with over $32 billion of assets, eight distinct business lines, and the broadest access to capital markets of anyone in our peer group. The ability to invest accretively and in scale every quarter, and to issue high-yield notes, upsize and reprice Term Loans, execute CLOs, ABS, and CMBS conduit securitizations across multiple asset classes. Our signaling is also unique and differentiated at a time when the traditional mortgage REIT model has come under pressure due to continued credit deterioration and a lack of investor confidence. It is a competitive moat that compounds to our company and shareholders over time. With that, I'll turn the call to Barry.

Jeffrey DiModica: This is why our results and trajectory are different. We are a diversified finance company with over $32 billion of assets, eight distinct business lines, and the broadest access to capital markets of anyone in our peer group. The ability to invest accretively and in scale every quarter, and to issue high-yield notes, upsize and reprice Term Loans, execute CLOs, ABS, and CMBS conduit securitizations across multiple asset classes.

Speaker #1: We are a diversified finance company with over 32 billion dollars of assets, eight distinct business lines, and the broadest access to capital markets of anyone in our peer group.

Speaker #1: The ability to invest accretively and in scale every quarter and to issue high-yield notes upsize and repriced term loans, execute CLOs, ABS, and CMBS conduit securitizations across multiple asset classes.

Speaker #1: Our signaling is also unique and differentiated at a time when the traditional mortgage REIT model has come under pressure due to continued credit deterioration and a lack of investor confidence.

Jeffrey DiModica: Our signaling is also unique and differentiated at a time when the traditional mortgage REIT model has come under pressure due to continued credit deterioration and a lack of investor confidence. It is a competitive moat that compounds to our company and shareholders over time. With that, I'll turn the call to Barry.

Speaker #1: And it is a competitive moat that compounds to our company and shareholders over time. With that, I'll turn the call over to Barry.

Speaker #2: Good morning, everyone. Thanks for joining us. But first, I am off my dais to wish Rina and Iria a happy birthday.

Barry Sternlicht: Good morning, everyone. Thanks for joining us. The first item of my day is to wish Rina Paniry a happy birthday. Happy birthday to you. The first management team to sing to their CFO. Maybe that's a violation of SEC decorum. I don't know. We'll find out. I'm a little surprised by the stock's reaction this morning. I think we actually have a pretty good quarter, and not deviant from anything we've talked about. I think we're kind of throwing the baby out with the bathwater. Remember, half our company is not large loan lending anymore, and I'm sure there's worries in the world about the stability of these mortgage folks, given our competitors' reports heretofore. I think we look at it differently and it goes to, of course, our dividend, which we're very public about. You can see we're not covering.

Speaker #3: Happy birthday to you.

Speaker #2: First, management seems to sing to their CFO. Maybe that's a violation of SEC decorum. I don't know. We'll find out. A little surprised by the stock's reaction this morning.

Speaker #2: I think we actually had a pretty good quarter and not deviant from anything we've talked about. I think we're kind of throwing the baby out with the bathwater.

Speaker #2: Remember, half our company is not large loan lending anymore. And I'm sure there's worries of in the world about the stability of these mortgage folks given our competitors reports heretofore.

Barry Sternlicht: Remember, half our company is not large loan lending anymore, and I'm sure there's worries in the world about the stability of these mortgage folks, given our competitors' reports heretofore. I think we look at it differently and it goes to, of course, our dividend, which we're very public about. You can see we're not covering.

Speaker #2: So I think we look at it differently, and it goes to, of course, our dividend, which we're very public about, and you can see we're not covering.

Speaker #2: We're pretty confident in our ability to get back to the earnings power that we'll need to drive the dividend and restore our coverage of dividend.

Barry Sternlicht: We're pretty confident in our ability to get back to the earnings power that we'll need to drive the dividend and restore our coverage of the dividend. Why are we confident? Let's start with what's actually happening at the property level in this United States today. Almost all the real estate asset classes here and in Europe are in repair. I mean, everything is getting better. If you just look at all the equity REITs in the multi-family sector, logistics sector, self-storage, senior housing, everything is getting better. That's basically driven by steady demand and rapidly deteriorating or non-existent supply. I think retail construction is less than 1%. Office is at historic lows. If you take out built to suits, there's almost nothing being built in this country. Apartment starts have dropped 70%. Logistics starts down 70%.

Speaker #2: And why are we confident? So let's start with what's actually happening at the property level in this United States today. Almost all the real estate asset classes here and in Europe are in repair.

Speaker #2: I mean, everything is getting better. If you just look at all the equity REITs in the multifamily sector and logistics sector, self-storage, senior housing, everything is getting better.

Barry Sternlicht: If you just look at all the equity REITs in the multi-family sector, logistics sector, self-storage, senior housing, everything is getting better. That's basically driven by steady demand and rapidly deteriorating or non-existent supply. I think retail construction is less than 1%. Office is at historic lows. If you take out built to suits, there's almost nothing being built in this country. Apartment starts have dropped 70%. Logistics starts down 70%.

Speaker #2: That's basically driven by steady demand and rapidly deteriorating or non-existent supply. I think retail construction is less than 1%, offices are historic lows if you take out built-to-suits, there's almost nothing being built in this country.

Speaker #2: Apartment starts have dropped 70%. Logistics starts down 70%. So and you're beginning to see improvements in rent in the multi-sector, which we've been waiting for, God knows how many quarters.

Barry Sternlicht: You're beginning to see improvements in rent in the multi-sector, which we've been waiting for, God knows how many quarters. The markets are absorbing. There's still new supply completing, and things are getting better market by market. Basically, the weakness is in the Sun Belt cities, and it's pretty strong on the two coasts, given nobody was building in California or New York City. Now it's even harder with the prospects of rent control in those markets. The bad news is for the whole sector on the legacy books are the flattening of the yield curve, that interest rates have gone up. We have a lot of multis that borrowers are saying, I'll survive till 2025.

Speaker #2: But the markets are absorbing. There's still new supply completing, and things are getting better, market by market. Basically, the weakness is in the Sunbelt cities, and it's pretty strong on the two coasts, given nobody was building in California or New York City.

Speaker #2: And now it's even harder with the rent, the prospects of rent control in those markets. So the bad news is for the whole sector on the legacy books, are the flattening of the yield curve, that interest rates have gone up.

Barry Sternlicht: Now it's even harder with the prospects of rent control in those markets. The bad news is for the whole sector on the legacy books are the flattening of the yield curve, that interest rates have gone up. We have a lot of multis that borrowers are saying, I'll survive till 2025.

Speaker #2: So we have a lot of multis that borrowers were saying, "I'll survive till '25, lower rates, will allow me to refinance, and I can hold on for what we know will be pretty good years if you listen to Camden or UDR or Avalon." Or Essex.

Barry Sternlicht: Lower rates will allow me to refinance, and I can hold on to what we know will be pretty good years. If you listen to Camden or UDR or Avalon or Essex, I mean, they're all different geographies, but they're all talking about pretty good year in H2 2026, and really good in 2027, and stupendous in 2028, is the kind of comments from those management teams. A lot of borrowers were holding on for that. They're not making a lot of money. They didn't. They're paying their debt service. Now it's getting a little more challenging for these guys because they're not refinancing at a three SOFR. They're refinancing at a four SOFR, a four and eight. I actually fundamentally can't really understand the Fed's position on raising rates to this economy. It's not going to open the Straits of Hormuz.

Speaker #2: I mean, they're all different geographies, but they're all talking about pretty good year and back half of '26 and really good in '27 and stupendous in '28 is the kind of comments from those management teams.

Speaker #2: A lot of borrowers were holding on for that. They're not making a lot of money. They didn't. But they're paying their debt service. And now it's getting a little more challenging for these guys because they're not refinancing the three so for the refinancing of the four so for.

Barry Sternlicht: Now it's getting a little more challenging for these guys because they're not refinancing at a three SOFR. They're refinancing at a four SOFR, a four and eight. I actually fundamentally can't really understand the Fed's position on raising rates to this economy. It's not going to open the Straits of Hormuz.

Speaker #2: Or four and an eight. I actually fundamentally can't really understand the Fed's position on raising rates to this economy. It's not going to open the Straits of Hormuz.

Speaker #2: It's not going to change the price of oil in the United States. It will only impact the interest rate-sensitive portions of the economy and sort of like a broken record, almost a third of the economy is really healthcare education and government hires.

Barry Sternlicht: It's not going to change the price of oil in the United States. It will only impact the interest rate-sensitive portions of the economy. I feel like a broken record. Almost a third of the economy is really healthcare, education, and government hires. Those sectors have added almost 6 million jobs since the Fed started raising rates 500 basis points in May 2022. It doesn't work on this economy. I listen to these bubbleheads on TV in the morning talking about the manufacturing sector. It's 12 million jobs. It's irrelevant to the United States economy today. We need to bring back manufacturing, and how are you going to do that with a 4% unemployment rate? Most people likely are working in service economies. It's really a funny concept, but it is a tax. The rise in oil price is a tax.

Speaker #2: That's those sectors have added almost 6 million jobs since the Fed started raising rates 500 basis points in May of '22. It doesn't work on this economy.

Speaker #2: I listened to these bubble heads on TV in the morning talking about the manufacturing sector. It's 12 million jobs. It's irrelevant to the United States economy today.

Barry Sternlicht: I listen to these bubbleheads on TV in the morning talking about the manufacturing sector. It's 12 million jobs. It's irrelevant to the United States economy today. We need to bring back manufacturing, and how are you going to do that with a 4% unemployment rate? Most people likely are working in service economies. It's really a funny concept, but it is a tax. The rise in oil price is a tax.

Speaker #2: We need to bring back manufacturing. And how are you going to do that with a 4% unemployment rate? Most people likely are working in the service economies.

Speaker #2: So, it's really a funny concept, but it is a tax. The rise in oil prices is a tax. The proper move might actually be to lower rates in order to induce the interest rate-sensitive sectors, like housing, to be affordable and to recover—and to take a burden off the consumer that increased prices represent to the consumer.

Barry Sternlicht: The proper move might actually be to lower rates in order to induce the interest rate-sensitive sectors like housing to be affordable and to recover and to take a burden off the consumer that increased prices represent to the consumer. I would say the backdrop is it's getting better at the property level, which fundamentally is important. The other big news, obviously, for our shareholder base this morning is we are very busy investing capital. The opportunity sets are great. We're having record flows of investments. They're double-digit yields consistent with everything we've ever produced in the past. This is all new stuff, and it's obviously becoming a bigger and bigger portion of our book going forward.

Speaker #2: So I would say the backdrop is it's getting better at the property level, which fundamentally is important. And the other bigness, obviously, for our shareholder base this morning is we are very busy investing capital.

Barry Sternlicht: The other big news, obviously, for our shareholder base this morning is we are very busy investing capital. The opportunity sets are great. We're having record flows of investments. They're double-digit yields consistent with everything we've ever produced in the past. This is all new stuff, and it's obviously becoming a bigger and bigger portion of our book going forward.

Speaker #2: The opportunity sets are great. We're having record flows of investments. They're double-digit yields consistent with everything we've ever produced in the past. And this is all new stuff, and it's obviously becoming a bigger and bigger portion of our book.

Speaker #2: Going forward. So what we have to do is nurse the older stuff. And we're pretty confident of our abilities to turn what doesn't earn much, or almost nothing, some of the assets we're getting back into being able to sell them and return the capital to invest at these double-digit returns which will ultimately support the dividend.

Barry Sternlicht: What we have to do is nurse the older stuff, and we're pretty confident of our abilities to turn what doesn't earn much or almost nothing, some of the assets we're getting back, to be able to sell them and return the capital to invest at these double-digit returns, which will ultimately support the dividend. I'll give you a few examples in our book, what you see, what you probably don't appreciate, Jeff kind of mentioned it, but I'll double-dip on the comment. When our borrowers get stressed, they stop investing in these assets, they kind of, in some cases, they don't put the money in to turn the apartment units. They're actually trying to strip what they can before they give it back to us. They stop CapEx.

Speaker #2: And I'll give you a few examples in our book and what you see. Probably don't appreciate and Jeff kind of mentioned it, but I'll double dip on the comment.

Barry Sternlicht: I'll give you a few examples in our book, what you see, what you probably don't appreciate, Jeff kind of mentioned it, but I'll double-dip on the comment. When our borrowers get stressed, they stop investing in these assets, they kind of, in some cases, they don't put the money in to turn the apartment units. They're actually trying to strip what they can before they give it back to us. They stop CapEx.

Speaker #2: When our borrowers get stressed, they stop investing in these assets and they kind of, in some cases, they can't even they don't put the money to turn the apartment units.

Speaker #2: They're actually trying to strip what they can before they give it back to us. They stop CapEx. Another property they didn't do elevator repairs, so you couldn't get to the units on the top of the property.

Barry Sternlicht: Another property, they didn't do elevator repairs, so you couldn't get to the units on the top of the property. One property we did foreclose on, which was a mixed-use development in Texas. Our team, since we took it over, like three months ago, has taken the NOI of the hotel from $1.2 to $4.6 million. The apartments, which we had to fix the elevators in, have gone from 60% to 80%. We're confident we'll get that into the 90s, and the hotel will stabilize probably in seven, eight. We'll get out of this hole, in my opinion. At the moment, it's earning not much for our shareholders. We're an equity shop. These are equity assets. Starwood Capital is an equity shop. I always joke to our team, it's really fun to get these multis back because you're getting them back at a really good price per key.

Speaker #2: One property we did foreclose on, which was a mixed-use development in Texas, our team, since we took it over, like three months ago, has taken the NOI of the hotel from 1.2 to 4.6 million dollars.

Speaker #2: The apartments, which we had to fix the elevators in, have gone from 60 to 80%. We're confident we'll get that into the 90s and the hotel will stabilize probably in the 7, 8.

Barry Sternlicht: We're confident we'll get that into the 90s, and the hotel will stabilize probably in seven, eight. We'll get out of this hole, in my opinion. At the moment, it's earning not much for our shareholders. We're an equity shop. These are equity assets. Starwood Capital is an equity shop. I always joke to our team, it's really fun to get these multis back because you're getting them back at a really good price per key.

Speaker #2: We'll get out of this hole, in my opinion. But at the moment, it's earning not much for our shareholders. So we're an equity shop.

Speaker #2: These are equity assets. Our capital is an equity shop. I always joke to our team, it's really fun to get these multis back because you're getting them back at a really good price per key.

Speaker #2: And if I was an opportunity fund, I'd buy them. And we are selling them. We're getting them back within a month or two or three months.

Barry Sternlicht: If I was an opportunity fund, I'd buy them. We are selling them. We're getting them back, and within a month or two or three months, they're gone. In fact, we fix it, we just sell it, and we don't lose money. We lose $5 million or $10 million. It's completely irrelevant to the company as a whole. In some cases, we might actually make a little bit of money if we're seeing cap rates. There's a portfolio of apartments that just sold in, like, a week at it'll trade in the 5.2. It's a very large deal. You did it with almost no due diligence. There's great appetite to buy apartments because everyone knows what's coming down the road. You see this across the whole country. In fact, we've been bidding on apartments on the West Coast.

Speaker #2: They're gone. In fact, we fix it. We just sell it. And we don't lose money. They could be lose 5 million or 10 million.

Speaker #2: It's completely irrelevant to the company as a whole. And in some cases, we might actually make a little bit of money if we're seeing cap rates.

Speaker #2: There's a portfolio of apartments that just sold in like a week. It'll trade in the 5, 2. It's a very large deal. And you did it with almost no due diligence.

Barry Sternlicht: There's a portfolio of apartments that just sold in, like, a week at it'll trade in the 5.2. It's a very large deal. You did it with almost no due diligence. There's great appetite to buy apartments because everyone knows what's coming down the road. You see this across the whole country. In fact, we've been bidding on apartments on the West Coast.

Speaker #2: So there's great appetite to buy apartments because everyone knows what's coming down the road. And you see this across the whole country. In fact, we've been bidding on apartments on the West Coast.

Barry Sternlicht: Cap rates are dipping below 4.6, 4.7. We have a bid at a 4.3 on an apartment deal in Florida. The cap rates are there to support these loans, but we have to work through it. There's no fast answer here. The resolutions of these deals is not always in our control. We have to take it back. We have to minimize transfer taxes if it's in the states with transfer taxes. We're confident in our ability to restore the earnings power of the company in the near term, although that could take a little longer than we would like. We're not considering changing our dividend policy at the moment. If things go differently, if something erupts that we don't know about and we see, we'd have to revisit that, but right now we're confident in our dividend.

Speaker #2: Cap rates are dipping below 4, 4, 6, 4, 7. We have a bid at 4, 3 on an apartment deal in Florida. So the cap rates are there to support these loans, but we have to work through it.

Speaker #2: There's no fast answer here. And the resolutions of these deals is not always in our control. So we have to take it back. We have to minimize transfer taxes.

Speaker #2: If it's in the states with transfer taxes, but we're confident in our ability to restore the earnings power of the company in the near term.

Barry Sternlicht: We're confident in our ability to restore the earnings power of the company in the near term, although that could take a little longer than we would like. We're not considering changing our dividend policy at the moment. If things go differently, if something erupts that we don't know about and we see, we'd have to revisit that, but right now we're confident in our dividend.

Speaker #2: Although that could take a little longer than we would like. And so we think we're not considering our dividend, changing our dividend policy at the moment.

Speaker #2: If things go differently, if something erupts that we don't know about and we see we'd have to revisit that, but right now we're confident in our dividend.

Speaker #2: And as a shareholder myself and the management team, we know exactly what we're doing. We're obviously overpaying our dividend. We're deteriorating our book value slightly.

Barry Sternlicht: As a shareholder myself and the management team, we know exactly what we're doing. We're obviously overpaying our dividend. We're deteriorating our book value slightly, but we believe our shareholders have wanted to be consistency and transparency, and that's why I'm talking so much today to actually tell you what is actually going on. We look at our book, I can break it down between the really good stuff, the stuff that eh, and then the stuff that's not doing much, and to us it represents just tremendous earnings power. We're going to look if we have to take small losses to redeploy that capital now and get to the 12s and 13s and better that we can produce on the capital when we get it back, we're going to do it. We'll just do it measuredly.

Speaker #2: But we believe our shareholders have wanted consistency and transparency, and that's why I'm talking so much today—to actually tell you what is going on.

Speaker #2: And we look at our book. I can break it down between the really good stuff, the stuff that, and then the stuff that's not doing much.

Barry Sternlicht: We look at our book, I can break it down between the really good stuff, the stuff that eh, and then the stuff that's not doing much, and to us it represents just tremendous earnings power. We're going to look if we have to take small losses to redeploy that capital now and get to the 12s and 13s and better that we can produce on the capital when we get it back, we're going to do it. We'll just do it measuredly.

Speaker #2: And to us, it represents just tremendous earnings power. And we're going to look if we have to take small losses to redeploy that capital now and get to the 12s and 13s and better that we can produce on the capital when we get it back, we're going to do it.

Speaker #2: So we'll just do it measuredly. And we have gains in our book. So we can offset some losses with gains. And you know where they are.

Barry Sternlicht: We have gains in our book, so we can offset some losses with gains. You know where they are. We've talked about them for the last 13 years. That stuff is only getting better. When you break down our businesses, look at our really good stuff, obviously our infrastructure business has been terrific, continues to be great. Our special servicer, our conduit, our resi book are all fine. Woodstar, our apartment portfolio, terrific. Our triple net lease business, not adding much to our earnings right now, but I look at it as an opportunity because we have a business that trades at a 6, a triple net lease business, 17-year leases, zero defaults. It trades at a 6 in the public market, and it trades at an 11 or 12 dividend yield in us, and that's dumb, right? We're not that stupid.

Speaker #2: We've talked about them for the last 13 years, and that stuff is only getting better. So, when you break down our businesses, look at our really good stuff.

Speaker #2: Obviously, our infrastructure business has been terrific, continues to be great. Our special service or our conduit, our resi book are all fine. Woodstar, our apartment portfolio, terrific.

Barry Sternlicht: Our special servicer, our conduit, our resi book are all fine. Woodstar, our apartment portfolio, terrific. Our triple net lease business, not adding much to our earnings right now, but I look at it as an opportunity because we have a business that trades at a 6, a triple net lease business, 17-year leases, zero defaults. It trades at a 6 in the public market, and it trades at an 11 or 12 dividend yield in us, and that's dumb, right? We're not that stupid.

Speaker #2: Our triple net lease business, not adding much to our earnings right now, but I look at it as an opportunity because we have a business that trades at a 6, a triple net lease business, defaults.

Speaker #2: It trades at a 6, and in the public market, it trades at an 11 or 12 dividend yield in the US. And that's dumb, right?

Speaker #2: We're not that stupid. So we have to look at what we can do here. We love the earnings. I mean, the stability of the earnings.

Barry Sternlicht: We have to look at what we can do here. We love the earnings. I mean, the stability of the earnings. We love the depreciation shield it gives us, but we have a large business inside of us that would be worth materially more if we sold it. If we sold it or we somehow spun it off, we did something with it, we obviously think we could enhance our earnings profile. It's not something we really want to do, but it's something we know that we have in our pocket that we could do if we could figure out the right way to do it. I'll give you one other REO story because I actually just visited the asset in Washington, DC. We took back an office building from one of the top three or four real estate sponsors in the United States.

Speaker #2: We love the depreciation shield it gives us, but we have a large business inside of us that would be worth materially more if we sold it.

Speaker #2: And if we sold it or we somehow spun it off or we did something with it, we obviously think we could enhance our earnings profile.

Speaker #2: It's not something we really want to do, but it's something we know that we have in our pocket that we could do if we could figure out the right way to do it.

Barry Sternlicht: It's not something we really want to do, but it's something we know that we have in our pocket that we could do if we could figure out the right way to do it. I'll give you one other REO story because I actually just visited the asset in Washington, DC. We took back an office building from one of the top three or four real estate sponsors in the United States.

Speaker #2: So I'll give you one other REO story because I actually just visited the asset in Washington, DC. We took back an office building from one of the top three or four real estate sponsors in the United States.

Speaker #2: A company that most people actually, this particular company is, even though we've taken multiple buildings back from them, they've never reported the defaults and the losses they've incurred in all these assets.

Barry Sternlicht: Actually, this particular company is, even though we've taken multiple buildings back from them, they've never reported the defaults and the losses they've incurred in all these assets, which is fascinating. Leaving that to the side, this former office building we inherited, we've got approval, and we've begun the process of turning it into an apartment complex. We've already started. Rents have gone up in DC. What we thought would just get us our capital back, now possibly we could make money on. There's no way to accelerate this. It's a couple hundred million dollar asset sitting on our books. You're giving it zero value because it's not there to produce a dividend. It is a work in progress. It will be finished. It will lease at a plus or minus something, and it'll be an additive asset, and we'll get our capital back.

Speaker #2: It's just just fascinating. But leaving that to the side, this former office building, we inherited. We've got approval and we've begun the process of turning it into an apartment complex.

Barry Sternlicht: We've already started. Rents have gone up in DC. What we thought would just get us our capital back, now possibly we could make money on. There's no way to accelerate this. It's a couple hundred million dollar asset sitting on our books. You're giving it zero value because it's not there to produce a dividend. It is a work in progress. It will be finished. It will lease at a plus or minus something, and it'll be an additive asset, and we'll get our capital back.

Speaker #2: I looked at where we started. Rents have gone up in D.C. What we thought would just get us our capital back—now, possibly, we could make money on.

Speaker #2: There's no way to accelerate this. It's a couple hundred million dollar asset sitting on our books. You're giving it zero value because it's not there to produce the dividend.

Speaker #2: It is a work in progress. It will be finished. It will lease. Plus or minus something, and it'll be an additive asset and we'll get our capital back.

Speaker #2: So I don't know how to do that any differently if you take the long view, which we have. We're the longest surviving firm in our space and the largest in our space.

Barry Sternlicht: I don't know how to do that any differently as you take the long view, which we have. We're the longest surviving firm in our space and the largest in our space. We're going to do that. Other cases, like we've restructured a loan on a portfolio of apartments, and we might look to just sell the loan. It's fine. The assets are definitely worth the loan balance, but it's underperforming. We can't materially increase the ROE on that loan. It was restructured, and we agreed to a fixed-rate loan. It's earning, but it's not earning the levels of returns we want to earn on capital of that scale at our company. Asset by asset, and modified loan and non-accrual loans, we're going through them all, and we're going to figure out the right way to maximize shareholder value and build back our book value.

Speaker #2: So we're going to do that. In other cases, like when we've restructured a loan on a portfolio of apartments, we might look to just sell the loan.

Speaker #2: It's fine. It's a loan where the assets are definitely worth the loan balance, but it's underperforming. We can't materially increase the ROE on that loan.

Barry Sternlicht: We can't materially increase the ROE on that loan. It was restructured, and we agreed to a fixed-rate loan. It's earning, but it's not earning the levels of returns we want to earn on capital of that scale at our company. Asset by asset, and modified loan and non-accrual loans, we're going through them all, and we're going to figure out the right way to maximize shareholder value and build back our book value.

Speaker #2: It was restructured, and we agreed to a fixed-rate loan. So it's under-earning, but it's not earning the levels of returns we want to earn on capital of that scale in our company.

Speaker #2: So asset by asset and modified loan and non-approval loans, we're going through them all and we're going to figure out the right way to maximize shareholder value and build back our book value.

Speaker #2: So I think I actually feeling pretty good about things. I'm looking at the future and all the earnings power of all these underperforming assets as well as our ability to put out the capital across our very differentiated platform.

Barry Sternlicht: I think I'm actually feeling pretty good about things. I'm looking at the future and all the earnings power of all these underperforming assets as well as our ability to put out the capital plus our very differentiated platform at very attractive returns, consistent or better than we've had in the past. We are going into a new line of business, which we'll tell you about next quarter. At least we're highly confident we're going into it, which will add another cylinder to our company. Again, nothing to do with income-producing commercial loans. We continue to look at acquisition opportunities and opportunities to consolidate our sector as some other people throw in the towel and their stocks are trading at material discounts to book value.

Speaker #2: I have very attractive returns, consistent with or better than what we've had in the past. And we are going into a new line of business, which we'll tell you about next quarter—at least, we're highly confident we're going into it.

Barry Sternlicht: At least we're highly confident we're going into it, which will add another cylinder to our company. Again, nothing to do with income-producing commercial loans. We continue to look at acquisition opportunities and opportunities to consolidate our sector as some other people throw in the towel and their stocks are trading at material discounts to book value.

Speaker #2: Which will add another cylinder to our company. Again, nothing to do with commercial well, income-producing commercial loans. And we continue to look at acquisition opportunities and opportunities to consolidate our sector as some other people throw in the towel and their stocks are trading at material discounts to book value.

Speaker #2: We should be a sector consolidator. And still keep our eye on the ball, which is to try to make investment grade down the road.

Barry Sternlicht: We should be a sector consolidator and still keep our eye on the ball, which is to try to make investment-grade down the road. What Jeff and Rina and the team have done to our balance sheet is heroic. We have by far the best balance sheet in the sector. I'd call it a fortress balance sheet in our sector with very little near-term maturities. We've lowered our cost of capital. If I'm right, which is a counter view, that rates won't go up as much as people say, I think things will get better, continue to get better. I'm happy that I can't tell you it's perfect today. Very happy that I can tell you how we can grow and restore our earnings power. It's pretty obvious to everyone in the room.

Speaker #2: What Jeff, Rina, and the team have done to our balance sheet is heroic. We have by far the best balance sheet in the sector.

Speaker #2: I'd call it a fortress balance sheet in our sector. With very little near-term maturities, we've lowered our cost of capital. And if I'm right, which is a counterview that rates won't go up as much as people say, I think things will get better.

Barry Sternlicht: We've lowered our cost of capital. If I'm right, which is a counter view, that rates won't go up as much as people say, I think things will get better, continue to get better. I'm happy that I can't tell you it's perfect today. Very happy that I can tell you how we can grow and restore our earnings power. It's pretty obvious to everyone in the room.

Speaker #2: Continue to get better. So unhappy that I can't tell you it's perfect today. Very happy that I can tell you how we can grow and restore our earnings power.

Speaker #2: It's pretty obvious to everyone in the room, and we're doing about what we told you we were going to do. So there's not much of a surprise.

Barry Sternlicht: We're doing about what we told you we were going to do, there's not much of a surprise. It is nice to see we had no deterioration in our credit book. The CECL reserve just went up because interest rates went up, and that's an economic model that we can't control. We have $700 million of reserves against this book. I'll give you a little hint. We'll probably use a lot of that down the road. That won't impact book value when that happens. When and if it happens. Again, things are picking up. Even the office markets are getting leases, which we've been consistent for now 2 years. The good buildings are leased and have tremendous rental power.

Speaker #2: It is nice to see we had no deterioration in our credit book. The Cecil Reserve just went up because interest rates went up. And that's an economic model that we can't control.

Speaker #2: We have $700 million of reserves against this book. I'll give you a little hint: we'll probably use a lot of that down the road.

Barry Sternlicht: We'll probably use a lot of that down the road. That won't impact book value when that happens. When and if it happens. Again, things are picking up. Even the office markets are getting leases, which we've been consistent for now 2 years. The good buildings are leased and have tremendous rental power.

Speaker #2: But that won't impact book value when that happens, and when and if it happens. But again, things are picking up. I mean, even the office markets are getting leases.

Speaker #2: We've been consistent for now two years. The good buildings are leased and have tremendous rental power. And even in our suburban book, in our equity book, not this company's book, but Starwood Capital's book, we're kind of surprised at the velocity of office leasing coming back to markets that you're here to foreconsider to be weak.

Barry Sternlicht: Even in our suburban book, in our equity book, not this company's book, but Starwood Capital's book, we're kind of surprised the velocity of office leasing coming back to markets that you've heretofore considered to be weak. The industrial markets, I can tell you, now again, away from this, we are quite busy and getting multiple bids again on industrial assets. All that bodes really well for the majority of our book, and for the opportunities that we have in front of us. With that, I thank you for your time, and I hope you have a great rest of summer, and I know you join me in wishing Rina a happy birthday. Thank you. Questions?

Speaker #2: And the industrial markets, I can tell you, again, away from this, we are quite busy and getting multiple bids again on industrial assets. All that bodes really well for the majority of our book.

Speaker #2: And for the opportunities that we have in front of us. So with that, I thank you for your time, and I hope you have a great rest of the summer.

Speaker #2: And I know you joined me in wishing Rina a happy birthday. Thank you. Questions?

Speaker #1: Thank you. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad.

Operator: Thank you.

Operator: Questions today.

Barry Sternlicht: Questions today.

Jeff DiModica: The questions, operator.

Jeffrey DiModica: The questions, operator.

Operator: Thank you.

Operator: Operator

Jeffrey DiModica: Operator

Operator: Conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we pull for questions. Our first question comes from Jade Rahmani with KBW. Please proceed with your question.

Speaker #1: A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.

Speaker #1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we pull for questions.

Speaker #1: Our first question comes from Jade Rahmani. With KBW. Please proceed with your question.

Speaker #2: Thanks very much. From an equity perspective, when you're bidding on multifamily, you mentioned the 4.3% cap rate and the California portfolio. How are you thinking about that?

Jade Rahmani: Thanks very much. From an equity perspective, when you're bidding on multifamily, you mentioned the 4.3% cap rate on the California portfolio. How are you thinking about that? Is there an opportunity to create rent growth, and there's supply shortfalls down the road, so the fundamentals are really going to turn the corner? Is that the thesis there? I think multifamily has been challenged with taking a lot longer to turn the corner on rent growth, and now with the recent spike in interest rates, that potentially weighing on valuations.

Speaker #2: Is there an opportunity to create rent growth and there's supply shortfalls down the road? So the fundamentals are really going to turn the corner?

Speaker #2: Is that the thesis there? Because I think multifamily has been challenged with taking a lot longer to turn the corner on rent growth. And now with the recent spike in interest rates, that potentially weighing on valuations.

Barry Sternlicht: The four three was actually in Florida. It wasn't in California. We bid on some apartments in the Bay Area, and I think the cap rates were four five. We lost, by the way. They're seeing 14% lease trade-outs in the Bay Area. Like this is in both renewals and new leases are positive. You see across the country, both in SFR and in apartments, that renewals are positive and the propensity of people to stay is higher than it's been in the past because there's nowhere for them to go. They're not buying houses. That's been good. They're positive. The new leases have been challenged. What we're seeing is concessions are burning off, and that's the first thing you see before market rates go up.

Speaker #3: So the 4.3 was actually in Florida. It wasn't in California, but we bid on some apartments in the Bay Area and I think the cap rates were 4.5.

Speaker #3: We lost, by the way. They're seeing 14% lease trade-outs in the Bay Area. So this is both renewals and new leases are positive. You see across the country, both in SFR and in apartments, that renewals are positive.

Barry Sternlicht: You see across the country, both in SFR and in apartments, that renewals are positive and the propensity of people to stay is higher than it's been in the past because there's nowhere for them to go. They're not buying houses. That's been good. They're positive. The new leases have been challenged. What we're seeing is concessions are burning off, and that's the first thing you see before market rates go up.

Speaker #3: And the propensity of people to stay is higher than it's been in the past because there's nowhere for them to go. They're not buying houses.

Speaker #3: So that's been good. They're positive. But the new leases have been challenged. And what we're seeing is concessions are burning off. And that's the first thing you see before market rates go up.

Speaker #3: So instead of three months or two and a half months, it's two months or one and a half months. That translates into rental growth, actually, effective net rents are going up.

Barry Sternlicht: Instead of three months or two and a half months, two months or one and a half months, that translates into rental growth actually. Effective net rents are going up. I think, it is market by market. I think the Northern Florida market seems to be turning a little faster than some other markets. Even in a city like Austin, which is probably the worst apartment market in the country, we have assets that are positive on both renewals and new leases and others that are down material. I think it's totally, right now it's like the stock market's picking. You pick your market, you pick your asset in the market, you pick your zip code in that sub-market. You see a lot of the new construction of data centers and to some extent, manufacturing facilities.

Speaker #3: And I think it is market by market. I think the Northern Florida markets seem to be turning a little faster than some other markets.

Speaker #3: And even in a city like Austin, which is probably the worst apartment market in the country, we have assets that are positive on both renewals and new leases.

Barry Sternlicht: Even in a city like Austin, which is probably the worst apartment market in the country, we have assets that are positive on both renewals and new leases and others that are down material. I think it's totally, right now it's like the stock market's picking. You pick your market, you pick your asset in the market, you pick your zip code in that sub-market. You see a lot of the new construction of data centers and to some extent, manufacturing facilities.

Speaker #3: And others that are down material. So I think it's totally right now, it's like the stock market picking. You pick your market, you pick your asset in the market, you pick your zip code in that submarket.

Speaker #3: You see a lot of the new construction of data centers and to some extent manufacturing facilities. If you're so lucky to have an apartment building near one of these, you have a great pricing power.

Barry Sternlicht: If you're so lucky to have a apartment building near one of these, you have a great pricing power. You saw the hotel companies talk about the lower end of the market getting better. It's kind of consistent with that C-shaped economy. We're beginning to see this bottom turn around, which we have not seen in our lower end extended stay stuff. Not stuff you own here. Starwood controls 110,000 apartments, 60,000 affordable units and 50,000 market rate. We get data trailing 30, 60, and 90 in every market we're in from our portfolio. Obviously with AI now we're collecting data on everything else that comes in the shop. For me, I'm an equity guy. We're sort of masquerading the debt world. We wouldn't mind holding some of these assets if we thought they were going to take off.

Speaker #3: You saw the hotel companies talk about the lower end of the market getting better. It's kind of consistent with that since C-shaped economy. We're beginning to see the bottom turn around.

Speaker #3: Which we have not seen. In our lower end extended stay stuff. Not stuff you own here, but Starwood controls 110,000 apartments, 60,000 affordable units, and 50,000 market rate.

Speaker #3: And we get data trailing 30, 60, and 90 in every market we're in from our portfolio. Obviously, with AI, now we're collecting data on everything else that comes in the shop.

Barry Sternlicht: We get data trailing 30, 60, and 90 in every market we're in from our portfolio. Obviously with AI now we're collecting data on everything else that comes in the shop. For me, I'm an equity guy. We're sort of masquerading the debt world. We wouldn't mind holding some of these assets if we thought they were going to take off.

Speaker #3: So we're for me, I'm an equity guy. We're sort of masquerading the debt world. We wouldn't mind holding some of these assets if we thought they're going to take off.

Speaker #3: We've been trying to turn them quickly and get rid of the REO and the multi-book. But at the time, I turned to our team and said, why are we selling at that price per unit?

Barry Sternlicht: We've been trying to turn them quickly and get rid of the REO in the multi-book. Half the time I turn to our team and say, "Why are we selling at that price per unit? It's half of replacement cost." It's funny. My own team showed me a REIT the other day that they classified as an office REIT. This office REIT is really an apartment REIT. The market thinks they're an office REIT. It's still classified there. 80%, 70% of their income is from apartments. We're a mortgage REIT. You're treating us like we're just a mortgage REIT. Even if I took back all this equity book, you'll still treat me like a mortgage REIT. I want to make money for the shareholders, I want to own these assets, as a mortgage REIT, I should get rid of them.

Speaker #3: It's half a replacement cost. So I think it's funny. My own team showed me a REIT the other day that they classified as an office REIT.

Speaker #3: This office REIT is really an apartment REIT. So the market thinks they're an office REIT. It's still classified there. About 80, 70% of their income is from apartments.

Barry Sternlicht: The market thinks they're an office REIT. It's still classified there. 80%, 70% of their income is from apartments. We're a mortgage REIT. You're treating us like we're just a mortgage REIT. Even if I took back all this equity book, you'll still treat me like a mortgage REIT. I want to make money for the shareholders, I want to own these assets, as a mortgage REIT, I should get rid of them.

Speaker #3: We're a mortgage REIT. You're treating us like we're just a mortgage REIT. Even if I took back all this equity book, you'll still treat me like a mortgage REIT.

Speaker #3: So I want to make money for the shareholders. So I want to own these assets. But as a mortgage REIT, I should get rid of them.

Speaker #3: So, I mean, we could convince people, like, half of us is in equity REITs that are trading probably at a 4.5% dividend yield.

Barry Sternlicht: Equity REITs are trading probably at a 4.5 dividend yield, not a 12. Our high ROE businesses, which is our servicer, the nation's largest, $100 billion of loans that it services and almost $10 billion in our special right now. That is a great business. That's a fantastic ROE business stuck inside of us. No one else has one, and we get no value for it in our current structure. We're treated just like everyone else, and no one else looks like our company. Not even remotely close. A few have pivoted to try to build some of these verticals, but they're irrelevant given their scale. We're half other things, right?

Speaker #3: Not a 12. So and our high ROE businesses, which is our servicers, the nation's largest, 100 billion dollars of loans that in services and almost 10 billion in our special right now, that is a great business.

Speaker #3: I mean, that's a fantastic ROE business stuck inside of us. No one else has one, and we get no value for it in our current structure.

Speaker #3: We're treated just like everyone else, and no one else looks like our company—not even remotely close. A few have pivoted to try to build some of these verticals, but they're irrelevant given their scale.

Speaker #3: We're half other things, right? So we have the tail. And for that reason, you'll see us get more aggressive on our stock. We purchase programs.

Barry Sternlicht: For that reason, you'll see us get more aggressive on our stock repurchase programs. Personally, we'll see what we do. You don't get gifts like this every day. I think we represent a pretty good value in a very volatile world where obviously we're in the data center business ourselves. We probably have $20, $30 billion deployed in that sector. We're a lender to the sector in the business. That is a crazy business right now, people. There's a moratorium going up for review, I guess, in Loudoun County, which is the largest data center market in the world. It is so big. It is bigger than all of Europe and Asia combined. It's been the king of data centers, and all of a sudden, they seem to have caught the political headwinds of not in my backyard.

Speaker #3: And personally, we'll see what we do. But you don't get gifts like this every day. So I think we represent a pretty good value in a very volatile world where obviously we're in the data center business ourselves.

Speaker #3: We probably have $20, $30 billion deployed in that sector. So we're a lender to the sector and in the business. But that is a crazy business right now, people.

Barry Sternlicht: That is a crazy business right now, people. There's a moratorium going up for review, I guess, in Loudoun County, which is the largest data center market in the world. It is so big. It is bigger than all of Europe and Asia combined. It's been the king of data centers, and all of a sudden, they seem to have caught the political headwinds of not in my backyard.

Speaker #3: There's a moratorium going up for review, I guess, in Dulles County. Which is the largest data center market in the world. It is so big.

Speaker #3: It is bigger than all of Europe and Asia combined. It's been the king of data centers. And all of a sudden, they seem to have caught the political headwinds of not in my backyard.

Speaker #3: So there's sort of pregnant on data centers. They have eight and a half gigawatts on their way to, I think, 10 or 12. So it's like that business is getting airy.

Barry Sternlicht: It is sort of pregnant on data centers. They have 8.5 gigawatts on the way to 10 or 12. It's like that business is getting airy, and we have stocks that are trading at all-time highs. Assuming all these data centers get built, well, they better hurry up and get space ready because the U.S., whether it's Chinese influence or not, is getting really hard to get approvals for data centers. I think the market has adjusted not a basis point for a slowdown in the ability of us to get all of us from the development world to get these data centers approved and up and ready in time. It makes those that are approved even more valuable. I think, look, the volatility of the world has always been good for the real estate sector.

Speaker #3: And we have stocks that are trading at all-time highs, assuming all these data centers get built. Well, they better hurry up and get space ready.

Speaker #3: Because the United States, whether it's Chinese influenced or not, is getting really hard to get approvals for data centers. And I think the market has not adjusted a basis point.

Barry Sternlicht: I think the market has adjusted not a basis point for a slowdown in the ability of us to get all of us from the development world to get these data centers approved and up and ready in time. It makes those that are approved even more valuable. I think, look, the volatility of the world has always been good for the real estate sector.

Speaker #3: We're slowing down in our ability to get all of us in the development world to get these data centers approved and up and ready in time.

Speaker #3: And it makes those that are approved even more valuable. But I think, look, the volatility of the world has always been good for the real estate sector.

Speaker #3: Real assets are someplace. Everybody wants to come and real estate loans are pretty attractive relative to tech credit, where I laugh. I was talking to one of my children the other day.

Barry Sternlicht: Real assets are someplace everybody wants to come, and real estate loans are pretty attractive relative to tech credit, where I laugh. I was talking to one of my children the other day. I said, At least we go to bed knowing a garage in Mongolia isn't coming up with a new LLM that's going to put us out of business. The pressure of our business is different, right? We don't really care about a building built in Tokyo, right? If you're in the tech world, you can go out of business literally overnight. This sector, we're resilient. We're the world's largest asset class, and there's always something to do. Our job is to go find out where the good risk returns are for the least risk. We've built a company that has lots of ability to deploy capital in other things.

Speaker #3: I said, at least we go to bed knowing a garage in Mongolia isn't coming up with a new LLM that's going to put us out of business.

Speaker #3: I mean, the pressure of our business is different, right? We're not we don't really care about a building built in Tokyo, right? And if you're in a tech world, you can go out of business literally overnight.

Barry Sternlicht: The pressure of our business is different, right? We don't really care about a building built in Tokyo, right? If you're in the tech world, you can go out of business literally overnight. This sector, we're resilient. We're the world's largest asset class, and there's always something to do. Our job is to go find out where the good risk returns are for the least risk. We've built a company that has lots of ability to deploy capital in other things.

Speaker #3: And this sector, we're resilient. We're the world's largest asset class. And there's always something to do. Our job is to go find out where the good risk returns are for the least risk.

Speaker #3: And we've built a company that has a lot of ability to deploy capital and other things. We've been looking at other things too. We're very careful, and the SIP team brought us a very interesting transaction, which we may or may not go back and do.

Barry Sternlicht: We've been looking at other things, too. We're very careful. The SIF team brought us a very interesting transaction, which we may or may not go back and do. We're looking at doing what we're supposed to do, which is build a consistent earning stream and be transparent. I think the shareholders do appreciate that, and that's why we've gotten these Nareit awards for eight years?

Speaker #3: But we're looking at doing what we're supposed to do, which is build a consistent earnings stream and be transparent. And I think the shareholders do approve appreciate that.

Speaker #3: And that's why we've gotten these new REITs award for eight years. 10 years in a row. So best reporting. Probably these earnings calls too.

Jeff DiModica: Yes.

Jeff DiModica: 10 years in a row. Most best reporting. Probably these earnings calls, too.

Barry Sternlicht: 10 years in a row. Most best reporting. Probably these earnings calls, too.

Jeff DiModica: Thank you, Jade.

Jeffrey DiModica: Thank you, Jade.

Speaker #1: Thank you, Jeffrey.

Jade Rahmani: Is there anything that you've experienced this cycle that changes your views on how Starwood Property Trust should invest? For example, the regional banks have pulled back materially. Does that open up an opportunity in perhaps fixed rate lending, attacking the middle market and also liability management? I think the mortgage REITs you mentioned that are under so much pressure, it has to do with their liability structure, which makes them a forced seller in many cases. Starwood has been wise to diversify and continue to diversify the right side of the balance sheet.

Speaker #2: Is there anything that you've experienced this cycle that changes your views on how Starwood property trusts should invest? For example, the regional banks have pulled back materially.

Speaker #2: Does that open up an opportunity in perhaps fixed-rate lending attacking the middle market? And also liability management. I think the mortgage REITs you mentioned that are under so much pressure, it has to do with their liability structure, which makes them a force seller in many cases.

Speaker #2: Starwood has been wise to diversify and continue to diversify the right side of the balance sheet.

Speaker #3: Yeah. Like the new business we'll talk about next quarter is actually a business that the regional banks have left. And or greatly reduced their capital allocation to.

Barry Sternlicht: Yeah. The new business we'll talk about next quarter is actually a business that the regional banks have left or greatly reduced their capital allocation to, and we think it could be a particularly good vertical for us going forward. We've been working on it, but we finally found a way to get in it. I would say, construction is interesting for us today. I guess the other thing that people need to be aware of course, is rising construction costs across the globe and the United States are still in place. We just recently had a board meeting, I think it was last week. One of our board members is in the construction industry, and you've gotten reports from some of the housing companies that prices have come down.

Speaker #3: And we think it could be a particular good vertical for us going forward. We've been working on it, but we finally found a way to get in it.

Speaker #3: And I would say construction is interesting for us. Today, I guess the other thing people need to be aware of, of course, is rising construction costs across the globe. In the United States, they are still in place.

Barry Sternlicht: I guess the other thing that people need to be aware of course, is rising construction costs across the globe and the United States are still in place. We just recently had a board meeting, I think it was last week. One of our board members is in the construction industry, and you've gotten reports from some of the housing companies that prices have come down.

Speaker #3: And one of our board members was we just recently had the board meeting. I think it was last week. And one of our board members is in the construction industry.

Speaker #3: And you've gotten reports from some of the housing companies that prices have come down. What's really happening is labor is becoming harder to get again.

Barry Sternlicht: What's really happening is labor is becoming harder to get again because the electrician and the plumber are getting picked off to build a data center at two times what they're getting paid to build a house. That applies to commercial real estate, too. All of the construction that's needed to build all this stuff, they're just stealing workers from other verticals in the economy and putting pressure on wages. Materials are okay. We'll see where oil winds up because everything in a building is some derivative of oil, plastics, and piping. Copper prices are pretty high. I think you're not getting a big help there. Construction prices are, it's not getting cheaper to build across the country. Particularly in the unions, union-dominated cities, it's brutally hard to make the economics work. I think, I don't know.

Speaker #3: Because the electrician and the plumber are getting picked off to build the data center at two times what they're getting paid to build a house.

Speaker #3: So that applies to commercial real estate too. All of the construction that's needed to build all this stuff, they're just stealing workers from other verticals in the economy and putting pressure on wages.

Speaker #3: Materials are okay. We'll see where oil winds up because everything in a building is some derivative of oil. Plastics and piping, copper prices are pretty high.

Barry Sternlicht: Materials are okay. We'll see where oil winds up because everything in a building is some derivative of oil, plastics, and piping. Copper prices are pretty high. I think you're not getting a big help there. Construction prices are, it's not getting cheaper to build across the country. Particularly in the unions, union-dominated cities, it's brutally hard to make the economics work. I think, I don't know.

Speaker #3: So I think you're not getting a big help there, but construction prices—it's not getting cheaper to build across the country. And particularly in the union-dominated cities, it's brutally hard to make the economics work.

Speaker #3: So I think I don't know. I mean, we're we had three loans. I think we approved yesterday. We're still seeing lots of opportunity globally.

Barry Sternlicht: We had three loans I think we approved yesterday. We're still seeing lots of opportunity globally. Pretty constructive in Europe and continue to find good opportunities. We've been through a lot of cycles in our 15 years, I guess. What I call credit cycles up and down our sector, and we continue to find opportunities to deploy capital. That's when you should be worried, by the way. You should be worried about us when we can't produce double-digit yields on the books we originate. We'll tell you when that happens. Right now, that's not the case.

Speaker #3: Pretty constructive in Europe. And continue to find good opportunities in the we've been through a lot of cycles in our 15 years, I guess.

Speaker #3: What I call credit cycles up and down our sector. And we continue to find opportunities to deploy capital. That's when you should be worried, by the way.

Speaker #3: I mean, you should be worried about us when we can't produce double-digit yields on our on the books we originate. We'll tell you when that happens.

Speaker #3: But right now, that's not the case.

Speaker #1: And it's been fairly consistent. The yields that were returning over the last four, five, six years even, on a levered basis, you said two things.

Jeff DiModica: It's been fairly consistent, the yields that we're returning over the last four, five, six years, even on a levered basis. You said two things, Jay. You talked about banks, and the banks pulling back has certainly helped our repo. We've talked about that ad nauseam, I won't go there. They are significantly better off lending to us from a regulatory capital perspective than making whole loans, and that's helpful where we finance ourselves. You also mentioned fixed-rate lending. The insurance companies with the lower cost of capital than us tend to lend fixed. When rates go up like this, they have a yield target, and that tends to drive spreads lower because they're willing to lend at an all-in yield, and that helps drive spreads. Both of those things are helpful to us from a borrowing perspective, where we're borrowing at lower spreads.

Jeffrey DiModica: It's been fairly consistent, the yields that we're returning over the last four, five, six years, even on a levered basis. You said two things, Jay. You talked about banks, and the banks pulling back has certainly helped our repo. We've talked about that ad nauseam, I won't go there. They are significantly better off lending to us from a regulatory capital perspective than making whole loans, and that's helpful where we finance ourselves.

Speaker #1: Jade, you talked about banks and the banks pulling back. It certainly helped our repo. We've talked about that ad nauseam, so I won't go there.

Speaker #1: But they are significantly better off lending to us from a regulatory capital perspective than making whole loans. And that's helpful. We can answer ourselves.

Speaker #1: You also mentioned fixed-rate lending. The insurance companies with the lower cost of capital than us tend to lend fixed. And when rates go up like this, they have a yield target and that tends to drive spreads lower because they're willing to lend at an all-in yield.

Jeffrey DiModica: You also mentioned fixed-rate lending. The insurance companies with the lower cost of capital than us tend to lend fixed. When rates go up like this, they have a yield target, and that tends to drive spreads lower because they're willing to lend at an all-in yield, and that helps drive spreads. Both of those things are helpful to us from a borrowing perspective, where we're borrowing at lower spreads.

Speaker #1: And that helps drive spreads. Both of those things are helpful to us from a borrowing perspective, where we're borrowing at lower spreads. So we draft up that, but we're unlikely to compete in fixed-rate lending away from the CMBS conduit world, where we're doing a decent amount of 5- and 10-year fixed-rate lending.

Jeff DiModica: We draft off that, we're unlikely to compete in fixed-rate lending away from the CMBS conduit world, where we're doing a decent amount of 5- and 10-year fixed-rate lending, and we're the number 1 non-bank originator of CMBS for the last 2 or 3 years in a row. Most of these things create tailwinds for what Barry said, which is our pipeline that we'll continue to earn double-digit yields on. Operator, next question.

Jeffrey DiModica: We draft off that, we're unlikely to compete in fixed-rate lending away from the CMBS conduit world, where we're doing a decent amount of 5- and 10-year fixed-rate lending, and we're the number 1 non-bank originator of CMBS for the last 2 or 3 years in a row. Most of these things create tailwinds for what Barry said, which is our pipeline that we'll continue to earn double-digit yields on. Operator, next question.

Speaker #1: And we're the number one non-bank originator of CMBS for the last two or three years in a row. But most of these things create tailwinds for what Barry said, which is our pipeline that will continue to earn double-digit yields on.

Speaker #1: Operator, next question.

Speaker #2: Our next question comes from Rick Shane with JP Morgan. Please proceed with your question.

Operator: Our next question comes from Rick Shane with JPMorgan. Please proceed with your question.

Speaker #4: Hey, guys. Thanks for taking my questions. Barry, I have no idea what the SEC will say about you singing, but I believe that they put "Happy Birthday" into the public domain.

Richard Shane: Hey, guys. Thanks for taking my questions. Barry, I have no idea what the SEC will say about you singing, but I believe that they put "Happy Birthday" into the public domain. At least Rina won't have to expense you singing to her this morning. One question for you. You started to talk about data centers. Starwood Digital Ventures has a partnership with MARA. I'm curious how we should think about how that partnership interfaces with Starwood Property Trust, how that partnership is going, and how you see allocation to data centers between equity and debt across the platform.

Speaker #4: So at least Rina won't have to expense your singing tour this morning. One question for you: you alluded to—or not alluded to, but you started to talk about data centers.

Speaker #4: Starwood Digital Ventures has a partnership with Mara. I'm curious how we should think about how that partnership interfaces with Starwood Property Trust, how that partnership is going, and how you see allocation to data centers between equity and debt across the platform.

Speaker #3: For those shareholders who don't—if anyone listening doesn't know what we're speaking about, Starwood on the private side has a JV with MARA, a Bitcoin mining company, where we take their Bitcoin mine and we take over and turn it into a data center.

Barry Sternlicht: For those shareholders or anyone listening who doesn't know what we're speaking about, Starwood, on the private side, has a JV with MARA, a Bitcoin mining company, where we take their Bitcoin mine, and we take over and turn it into a data center. They have a number of projects, and there's been tremendous tenant interest in their projects. There's no crossover between Starwood Property Trust and the activities of Starwood Digital Ventures at the moment, or the MARA partnership, they're totally separate. I think you saw the ERCOT moratorium in Texas, and I think that's just a slowdown till they figure out what they're going to do. Getting approvals for deals has been harder since the public sentiments determined that data centers are evil. Even in Texas, it's put a kink in things. We do have unbelievable tenant interest in the properties.

Speaker #3: They have a number of projects. And there's been tremendous tenant interest in their projects. There's no crossover between Starwood Property Trust and the activities of Starwood Digital Ventures.

Speaker #3: At the moment or the Mara partnership. So they're totally separate. But I think you saw of the EPCOT moratorium in Texas, and that I think that's just a slowdown to figure out what they're going to do.

Barry Sternlicht: I think you saw the ERCOT moratorium in Texas, and I think that's just a slowdown till they figure out what they're going to do. Getting approvals for deals has been harder since the public sentiments determined that data centers are evil. Even in Texas, it's put a kink in things. We do have unbelievable tenant interest in the properties.

Speaker #3: But getting approvals for deals has been harder. Since the public sentiment's determined that data centers are evil. So even in Texas, it's put a kink in things.

Speaker #3: We do have unbelievable tenant interest in the properties. And I think for all of us in the data center world, we have to figure out what the credit profile is of some of the tenants.

Barry Sternlicht: I think for all of us in the data center world, we have to figure out what the credit profile is of some of the tenants. We've only done deals with the hyperscalers. Even the hyperscale world, there's a different credit of Oracle versus Meta or Amazon or Microsoft. We've not done any data center work with any of the neo-scalers, or CoreWeave or any of those guys. I think the whole data center world is being driven by the availability and proceeds levels and pricing of the debt. Because everybody's trying to do basically the same thing with the same half a dozen tenants. Some people are willing to build. It's funny. It's so new in the markets that people say, "I got a data center." You're like, "Oh, well, that's great." Some of them are maybe they're building to a seven.

Speaker #3: There's obviously the we've only done deals with the hyperscalers. But even the hyperscale world, you have the different credit of Oracle versus Meta or Amazon or Microsoft.

Speaker #3: And then we've not done any data center work with any of the neoskalers or CoreWeave or any of those guys. And I think the whole data center world is being driven by the availability and proceeds levels and pricing of the debt.

Barry Sternlicht: I think the whole data center world is being driven by the availability and proceeds levels and pricing of the debt. Because everybody's trying to do basically the same thing with the same half a dozen tenants. Some people are willing to build. It's funny. It's so new in the markets that people say, "I got a data center." You're like, "Oh, well, that's great." Some of them are maybe they're building to a seven.

Speaker #3: Because everybody's trying to do basically the same thing with the same half a dozen tenants. And some people are willing to build. It's so new in the markets that I got a data center deal and people say, "Oh, it's great."

Speaker #3: But some of them are maybe they're building to a seven. Some may be building to eight. Some people are building to nine. Some people are building to ten.

Barry Sternlicht: Some may be building to an eight. Some people are building to a nine. Some are building to 10. We built the data center to go to 12. You don't know. You can't know. I was seeing one of you has written about another equity REIT that's big in data center businesses, and they're making an assumption, some of the analysts are, what the yields on costs are. There's no way you know that because nobody's told you that. The lease hasn't been signed, so how could you know? I think from our perspective is that our lending to that sector, we're very comfortable where we are and in the syndicates that we participated in. We'll continue to look at the credits and make sure that we're comfortable with the credits. Once these things are completed, they will be refinanced.

Speaker #3: All right. We built a data center to a 12. I mean, you don't know. You don't know. You can't know. I was seeing one of you has written about another REIT.

Speaker #3: Equity wreath that's big in data center businesses. And they're making assumption some of the analysts are what the yields on cost are. There's no way you know that.

Barry Sternlicht: There's no way you know that because nobody's told you that. The lease hasn't been signed, so how could you know? I think from our perspective is that our lending to that sector, we're very comfortable where we are and in the syndicates that we participated in. We'll continue to look at the credits and make sure that we're comfortable with the credits. Once these things are completed, they will be refinanced.

Speaker #3: Because nobody's told you that. At least hasn't been signed. So how could you know? So I think from our perspective is that our lending to that sector is very we're very comfortable.

Speaker #3: Where we are. And in the syndicates that we've participated in, it will continue to look at the credits and make sure that we're comfortable with the credits.

Speaker #3: And once these things are completed, they will be refinanced. Because I guess another view is with you have a 15 or 20-year lease from a hyperscaler, and it's backed by their credit to it depends what kind of data center it is, but the real question is, why should there real estate credit be 5, 400, 300, 200 basis points wide of their corporate credit?

Barry Sternlicht: Because I guess another view is whether you have a 15- or 20-year lease from a hyperscaler, and it's backed by their credit, it depends what kind of data center it is. The real question is why should their real estate credit be 500, 400, 300, 200 basis points wide of their corporate credit? That's what the market sees. There seems to be a tremendous appetite, at least in the public markets, for data center debt. You've seen some very large deals get done and still in the market. We look at everything. What we want to participate in and not. Typically, today, the spreads on a Microsoft deal won't work for us. We won't be able to make that.

Speaker #3: And that's what the market sees. So there seems to be a tremendous appetite, at least in the public markets, for data center debt. And you've seen some very large deals get done and still in the market.

Barry Sternlicht: There seems to be a tremendous appetite, at least in the public markets, for data center debt. You've seen some very large deals get done and still in the market. We look at everything. What we want to participate in and not. Typically, today, the spreads on a Microsoft deal won't work for us. We won't be able to make that.

Speaker #3: And we're looking at everything. So what we want to participate in and not typically today that spreads on a Microsoft deal won't work for us.

Speaker #3: We won't be able to make that.

Speaker #1: But we were fairly early on, and we do have some much higher yielding data center exposure. Our largest one will pay off later this year.

Jeff DiModica: We were fairly early on, and we do have some much higher yielding data center exposure. Our largest one will pay off later this year. It's already out of construction. The book that we put on, we're very comfortable with. It future funds to about $1.8 billion total of our $30 billion book. It's that higher yield than you can get today.

Jeffrey DiModica: We were fairly early on, and we do have some much higher yielding data center exposure. Our largest one will pay off later this year. It's already out of construction. The book that we put on, we're very comfortable with. It future funds to about $1.8 billion total of our $30 billion book. It's that higher yield than you can get today.

Speaker #1: It's already out of construction. But the book that we put on, we're very comfortable with. Future fundings to about $1.8 billion, total, of our $30 billion book.

Speaker #1: But it's that higher yield than you can get today.

Speaker #3: But it's exactly the point. It was a finished data center gets refinanced and we get taken out.

Barry Sternlicht: That's exactly the point. As a finished data center gets refinanced, then we can take it out.

Speaker #4: Got it. Appreciate the answers, guys. Thank you. Happy birthday, Rina.

Richard Shane: Got it. Appreciate the answers, guys. Thank you. Happy birthday, Rina.

Speaker #5: Thanks, Rick.

Speaker #3: Don't ask her hard questions on her birthday. Wait until tomorrow.

Barry Sternlicht: Don't ask her hard questions on her birthday. Wait till tomorrow.

Speaker #2: Thank you. Our next question comes from Chris Muller with Citizens Capital Markets. Please proceed with your question.

Operator: Thank you. Our next question comes from Chris Moeller with Citizens Capital Markets. Please proceed with your question.

Speaker #6: Hey, guys. Thanks for taking the question. I wanted to touch on the net lease business a little bit. The interest rate environment has shifted pretty dramatically since you first acquired that.

Chris Moeller: Hey, guys. Thanks for taking the question. I wanted to touch on the net lease business a little bit. The interest rate environment has shifted pretty dramatically since you guys first acquired that. We have two rate hikes priced in by mid-year next year. I guess generally, how do you guys expect that business to perform in a rising rate environment, and maybe both on the demand side and the existing portfolio?

Christopher Moeller: Hey, guys. Thanks for taking the question. I wanted to touch on the net lease business a little bit. The interest rate environment has shifted pretty dramatically since you guys first acquired that. We have two rate hikes priced in by mid-year next year. I guess generally, how do you guys expect that business to perform in a rising rate environment, and maybe both on the demand side and the existing portfolio?

Speaker #6: We have two rate hikes priced in by mid-year next year. So I guess generally, how do you guys expect that business to perform in a rising rate environment?

Speaker #6: And maybe both on the demand side and the existing portfolio.

Barry Sternlicht: We play in this space in a niche, which is the sort of, fairly spec of core facilities, usually associated with some transaction that's taking place. What we've actually seen is not what you would've expected with rising rates, those cap rates are coming down. There's a lot of money chasing net lease, we have a lot of peers that are raising money privately to compete. We're scratching our heads on some of them, because we can't understand the cap rates that they're buying at and the leverage they must be putting in place, how they could be producing the returns they're talking about. It's simply not possible, frankly. I don't understand what they're reporting. This is other companies, not us. Our book steps up 2%, 2.25%, rent bumps every year.

Speaker #3: We play in the space of the niche, which is to serve fairly specific core facilities, usually associated with some transaction that's taking place.

Speaker #3: What we've actually seen is not what you would have expected with rising rates. So cap rates are coming down. There's a lot of money chasing net lease.

Speaker #3: And we have a lot of peers that are raising money privately to compete. And we're scratching our heads on some of them. Because we can't understand the cap rates that they're buying at and the leverage they must be putting in place.

Barry Sternlicht: We're scratching our heads on some of them, because we can't understand the cap rates that they're buying at and the leverage they must be putting in place, how they could be producing the returns they're talking about. It's simply not possible, frankly. I don't understand what they're reporting. This is other companies, not us. Our book steps up 2%, 2.25%, rent bumps every year.

Speaker #3: How they could be producing the returns they're talking about. It's simply not possible, frankly. I don't understand what they're reporting. This is other companies, not us.

Speaker #3: So our book steps up. We have two or two and a quarter percent rent bumps every year. We've got a great leverage structure in place with this ABS securitization trust, which we've done and even in there, I think the spreads come down probably 50 bips from where we started.

Barry Sternlicht: We've got a great leverage structure in place with this ABS, securitization trust, which we've done up. Even in there, I think the spread's come down probably 50 basis points from where we started, and leverage levels have risen. The ROE goes up because even though you're coming down on the cap rate, you're getting a little more leverage.

Speaker #3: And leverage levels have risen. So the ROE goes up because even though you're paying, you're coming down on the cap rate, you're getting a little more leverage.

Speaker #3: It's matchbook.

Speaker #1: And we cut 70 basis points or so off our warehouse facilities in the interim before they go to ABS.

Jeff DiModica: We cut 70 basis points or so off our warehouse facilities in the interim before they go to ABS.

Jeffrey DiModica: We cut 70 basis points or so off our warehouse facilities in the interim before they go to ABS.

Speaker #3: So you're still super competitive, but we hear you. I mean, around the world, capital is looking for safe high returns. And I think triple net lease is just a bond equivalent kind of thing.

Barry Sternlicht: You're still super competitive, but we hear you. Around the world, capital is looking for safe, high returns. I think triple net lease is just a bond equivalent kind of thing. You would think normally a long-dated bond would go down in value, but I think there's just still a quest for yield everywhere. One of the enigmas of our business is like Tokyo. Cap rates are in the 3s. You all know what's happened to Tokyo interest rates. Cap rates are plummeting, and they're plummeting because rents are going up. I've always told our team, rents are more important than interest rates. If you think rents are going up, you're going to buy down the cap rate, and you don't really give a hoot about a quarter point in interest rates. I think you'll see the same thing in properties.

Speaker #3: You would think normally a long-dated bond would go down in value, but I think there's just still a quest for yield everywhere. And one of the enigmas of our business is Tokyo.

Barry Sternlicht: One of the enigmas of our business is like Tokyo. Cap rates are in the 3s. You all know what's happened to Tokyo interest rates. Cap rates are plummeting, and they're plummeting because rents are going up. I've always told our team, rents are more important than interest rates. If you think rents are going up, you're going to buy down the cap rate, and you don't really give a hoot about a quarter point in interest rates. I think you'll see the same thing in properties.

Speaker #3: Cap rates are in the threes. You all know what's happened to Tokyo interest rates. Cap rates are plummeting. And they're plummeting because rents are going up.

Speaker #3: And I've always told our team, I mean, rents are more important than interest rates. If you think rents are going up, you're going to buy down the cap rate.

Speaker #3: And you don't really give a hoot about a quarter point in interest rates. So I think you'll see the same thing in properties. You won't be directly linked if there's significant growth.

Barry Sternlicht: You won't be directly linked if there's significant growth. You see this today in the active senior housing. Senior housing and you're buying down the cap rate because the growth is so strong. There's no construction. Believe me, we're in the market bidding on this stuff all the time and getting outbid all the time. It's really about rental growth. It's three-quarters of the underwriting. It's interesting. We lost these deals, and probably regret doing it on, like for the apartments in the West Coast, some of these markets where when you see 10% rent increases, of course you should deal with the prospects of rent regulation and everything else in the blue states.

Speaker #3: You see this today in the active senior housing. Senior housing and you're buying down the cap rate because the growth is so strong. There's no construction.

Speaker #3: So the rise in interest rates, not and believe me, we're in the market bidding on this stuff all the time and getting outbid all the time.

Speaker #3: It's really about rental growth. It's three-quarters of the underwriting. And it's interesting. We lost these deals and probably regret doing it for the apartments in the West Coast, some of these markets where when you see 10% rent increases, and of course, you should deal with the prospects of rent regulation and everything else in the blue states.

Barry Sternlicht: It's three-quarters of the underwriting. It's interesting. We lost these deals, and probably regret doing it on, like for the apartments in the West Coast, some of these markets where when you see 10% rent increases, of course you should deal with the prospects of rent regulation and everything else in the blue states.

Speaker #3: But you can buy down the cap rate pretty quickly because you're not worried about the cap rate or the yield being that same number two or three years from now.

Barry Sternlicht: You can buy down the cap rate pretty quickly because you're not worried about the cap rate or the yield being that same number two, three years from now. You're right. I think our capital deployment, to be honest, has been slower than I hoped. It's been what they planned, to be clear. I kind of thought as we got more aggressive in our ability to finance the business, we could put out more money. It's been steady, but not as high. That's one of the reasons it's not as accretive as we had hoped earlier. We knew it would be dilutive when we bought it, but we thought we could get it to materially accretive faster. That has not been the case because yields have come down. Cap rates have come down for the triple net lease. Too fast for us.

Speaker #3: So you're right. I mean, I think our capital deployment, to be honest, has been slower than I hoped. It's been what they planned to be clear.

Speaker #3: But I kind of thought as we got more aggressive with our and our ability to finance the business, we could put out more money.

Speaker #3: And it's been steady, but not as high. And that's one of the reasons the it's not as accretive as we had hoped earlier. We knew it would be dilutive when we bought it, but we thought we could get it to materially accretive faster.

Barry Sternlicht: That's one of the reasons it's not as accretive as we had hoped earlier. We knew it would be dilutive when we bought it, but we thought we could get it to materially accretive faster. That has not been the case because yields have come down. Cap rates have come down for the triple net lease. Too fast for us.

Speaker #3: And that has not been the case because yields have come down. Cap rates have come down for the triple net lease. And too fast for us, even though the financing has come down, it hasn't been enough to get the and actually, there's one thing you see.

Barry Sternlicht: Even though the financings come down. Actually, there's one thing you see, there's fewer buyouts, there's fewer deals because rates have gone up and people are scratching their heads on their terminal values and their multiples. Are they right? Are they wrong? It's solid, and it's a great business. It's just it's not been as accretive, and obviously we issued stock to buy the company at a higher price, so sort of unfortunate, but it's not a bad thing. Again, it sits in our business, and you can look at the public comps and know what it would trade at. It wouldn't trade in the 12s or the 80s.

Speaker #3: There's fewer buyouts. There's fewer deals because rates have gone up and people are scratching their heads on their terminal values and their multiples are they right or they're wrong.

Speaker #3: So it's solid and it's a great business. It's just it's not been as it's not been as accretive. And obviously, we issued stock to buy the company at a higher price.

Speaker #3: So it's sort of unfortunate. But it's not a bad thing. It's just and again, it sits in our business and you can look at the public comms and know what it would trade at.

Speaker #3: It wouldn't trade at. So thank you.

Chris Moeller: Yeah, those are all very helpful. I appreciate that.

Christopher Moeller: Yeah, those are all very helpful. I appreciate that.

Speaker #6: That was all very helpful. I appreciate that.

Speaker #3: Thanks, Chris.

Barry Sternlicht: Thanks, Chris.

Speaker #2: And our final question comes from Gabe Pogi with Raymond James please proceed with your question.

Operator: Our final question comes from Gabriel Poggi with Raymond James. Please proceed with your question.

Speaker #5: Hey, all. Thank you for taking the question, and happy birthday, Rina. Barry and Jeff, I wanted to go back to the comments—thinking about, look, Starwood Property Trust is a diversified commercial real estate business, period.

Gabriel Poggi: Hey, all. Thank you for taking the question, and happy birthday, Rina. Barry and Jeff, I wanted to go back to the comments, thinking about, look, Starwood Property Trust is a diversified commercial real estate business, period. You guys have been around for 15 years. You're the bellwether in the space. You got a lot of cylinders. How do you think about the world we live in now, right, still being bucketed as a mortgage REIT, having a net lease business, having Woodstar, taking on more REO. Barry, to your comments of we'd like to own these assets for a long time. How do you think about that in the construct of cash flows? The dividend has been a constant since day one, which you guys have talked about ad nauseam in a good way. Thinking about that, and then arguably, what's the best total return, right?

Speaker #5: You guys have been around for 15 years. You're the bellwether in the space. They got a lot of cylinders. How do you think about the world we live in now, right, still being bucketed as a mortgage rate?

Speaker #5: Having a net lease business, having Woodstar, taking on more REO, Barry, to your comments of we'd like to own these assets for a long time.

Gabriel Poggi: Barry, to your comments of we'd like to own these assets for a long time. How do you think about that in the construct of cash flows? The dividend has been a constant since day one, which you guys have talked about ad nauseam in a good way. Thinking about that, and then arguably, what's the best total return, right?

Speaker #5: How do you think about that in the construct of, right, cash flows, the dividend has been a constant since day one, which you guys have talked about at Nauseam in a good way.

Speaker #5: But thinking about that and then arguably what's the best total return? Right? If you had a buck today, what's the best total return profile from an asset allocation perspective?

Gabriel Poggi: If you had USD 1 today, what's the best total return profile from an asset allocation perspective? Is it making new loans, just cranking out 12s? Is it taking back keys on Sunbelt Multi, waiting a few years, hoping the Not, hoping is the wrong word. Fixing them, the market, the Iran conflict settles, rates come down to Scotia, et cetera, and there's a way to move those faster. I want to get a dynamic of how kind of the big machine, Starwood Capital, thinks about what STWD can do while you play the long game.

Speaker #5: Is it making new loans, just cranking out 12s? Is it taking back keys on Sunbelt Multi, waiting a few years, hoping to not hoping is the wrong word, fixing them the market, a ran conflict settles, rates come down to scope, et cetera, and there's a way to move those faster?

Speaker #5: I want to get a dynamic of how kind of the big machine, Starwood Capital, thinks about what STWD can do while you play the long game.

Barry Sternlicht: Yes, yes, and yes.

Speaker #3: Yes, yes, and yes. It's a really good question. I mean, we should maybe we can sorry, most of you follow the mortgage rates, but maybe we could get some equity rates to analysts to follow us.

Gabriel Poggi: There you go.

Barry Sternlicht: It's a really good question. Maybe we can, sorry, most of you follow the mortgage REITs, but maybe we could get some equity REITs to follow, analysts to follow us. Move to our own little bucket. The bad news is we created a weird company in the capital markets, and you've seen other REITs diversify, and sometimes it doesn't seem to pan out the way they hoped. I think if we were structurally going to change ourselves, that's something that's a very material strategic decision. Right now we're supposed to be a mortgage REIT or I'd say a commercial finance company. I thought, Jeff tells me we're about 26% on real estate today. I don't know if that's good or bad news, but in the Woodstar case, it's good news.

Speaker #3: And move to our own little bucket. The bad news is, we created a weird company in the capital markets. And you've seen other REITs diversify, and sometimes it doesn't seem to pan out the way they hoped.

Speaker #3: I think if we were structurally going to change ourselves, that's something that's a very material strategic decision. And right now, we are supposed to be a mortgage rate or I'd say a commercial finance company or finance company.

Barry Sternlicht: I think if we were structurally going to change ourselves, that's something that's a very material strategic decision. Right now we're supposed to be a mortgage REIT or I'd say a commercial finance company. I thought, Jeff tells me we're about 26% on real estate today. I don't know if that's good or bad news, but in the Woodstar case, it's good news.

Speaker #3: And I thought we're Jeff tells me we're about 26% owned real estate today. I don't know if that's good or bad news, but I mean, in the Woodstar case, it's good news.

Speaker #3: Well, we bought those. Because we own the stock, I said, these are things I never want to sell. They're how could affordable housing, again, rents do not go down.

Barry Sternlicht: When we bought those, because we own the stock, I said, "These are things I never want to sell." How could affordable housing, again, rents do not go down. It's impossible. They go up based on income growth. Over time, you're going to have income growth. They have no real estate taxes, so we're not going to get pressured by municipalities that are going to keep raising taxes to tax those wealthy people that own buildings. They are just this fundamentally a fantastic business. Look, it's not a 30% IRR business every day. We made $2 billion in this trade for our shareholders, which Starwood Capital Group did. It's given us a potpourri of opportunities to help ourselves with potential gains if we want to harvest them to help us offset some of the other challenges in the book.

Speaker #3: It's impossible. And they go up based on income growth. And over time, you're going to have income growth. So and they have no real estate taxes.

Speaker #3: So we're not going to get pressured by municipalities that are going to keep raising taxes to tax those wealthy people that own buildings. So they are just the fundamentally a fantastic business.

Barry Sternlicht: They are just this fundamentally a fantastic business. Look, it's not a 30% IRR business every day. We made $2 billion in this trade for our shareholders, which Starwood Capital Group did. It's given us a potpourri of opportunities to help ourselves with potential gains if we want to harvest them to help us offset some of the other challenges in the book.

Speaker #3: And look, it's not a 30% IRR business every day, but we made $2 billion in our $2 billion in this trade for our shareholders, which Starwood Capital Group did.

Speaker #3: So and it's given us a potpourri of opportunities to help ourselves with potential gains if we want to harvest them to help us offset some of the other challenges in the book.

Speaker #3: But yeah, it's a good question. We're going to have to think about this over time. And see how this all comes to fruition. We're not going to have the stock traded at 12 dividend yields.

Barry Sternlicht: Yeah, it's a good question. We're going to have to think about this over time, and see how this all comes to fruition. We're not going to have the stock traded at 12 dividend yield. That's sort of silly. Why would we even do anything? That's why we'll go back in the markets and start buying stock again.

Speaker #3: I mean, that seems to be that's and we can't that's sort of silly. Why would we even do anything? That's why we'll go back in the markets and start buying stock again.

Speaker #4: If you think it's 26% commercial real estate owned commercial real estate to trade at a lower dividend yield, which I think the world is telling you low income housing tax credits do net lease does a few months we've taken back do you're effectively implying 14% dividend yield on your lending businesses.

Jeff DiModica: If you think it's 26% commercial real estate, owned commercial real estate should trade at a lower dividend yield, which I think the world is telling you Low-Income Housing Tax Credit do, net lease does, the two multi we've taken back do. You're effectively implying 14% dividend yields-

Jeffrey DiModica: If you think it's 26% commercial real estate, owned commercial real estate should trade at a lower dividend yield, which I think the world is telling you Low-Income Housing Tax Credit do, net lease does, the two multi we've taken back do. You're effectively implying 14% dividend yields-

Jeff DiModica: Yeah

Barry Sternlicht: Yeah

Jeff DiModica: on your lending businesses. Our lending businesses are performing in line with what we're telling you, and we have outsized return lending businesses like our infrastructure business, et cetera. It-

Jeffrey DiModica: on your lending businesses. Our lending businesses are performing in line with what we're telling you, and we have outsized return lending businesses like our infrastructure business, et cetera. It-

Speaker #4: And our lending businesses are performing in line with what we're telling you. And we have outsized return lending businesses like our infrastructure business, et cetera.

Speaker #4: So it's.

Speaker #3: Well, you know the markets. We're caught in ETFs. They're probably ETFs are getting redemptions. I'm sure that's part of the issue with our sector.

Barry Sternlicht: Well, you know the markets. We're caught in ETFs. The private ETFs are getting redemptions. I'm sure that's part of the issue with our sector. We're big, so we get hit with redemptions as much or more than others. We just have to distinguish ourselves over time. Jeff makes a superb point, which I'll say again, because it's so good. If 26% of your books should trade at a six, it's like look at the cap rates of apartments which are fives in the public market. Net lease dividend yields are six. I think the underlying analyzer, look, there's six to seven cap rates. You take that out, six or seven. There are mortgage books, what, at 14 or 15? That's ridiculous. With this credit, what's our LTV exposure? Zero to what? 40, 57? It's ridiculous. We have whole loans, it's ridiculous.

Speaker #3: And we're big, so we get hit with redemptions as much as more of the others. So we just have to distinguish ourselves over time.

Speaker #3: But Jeff makes a superb point, which I'll say again, so good. If 26% of your book should trade at a 6, it's like look at the cap rates of apartments or which are 5s.

Speaker #3: And the public market and at least dividend yields are 6, I think the underlying analyzers ers are 6 to 7 cap rates. So you take that out, 6 or 7, there are mortgage books what a 14 or 15?

Barry Sternlicht: I think the underlying analyzer, look, there's six to seven cap rates. You take that out, six or seven. There are mortgage books, what, at 14 or 15? That's ridiculous. With this credit, what's our LTV exposure? Zero to what? 40, 57? It's ridiculous. We have whole loans, it's ridiculous.

Speaker #3: That's ridiculous. So with this credit, what's our LTV exposure? 0 to what? 40, 57? It's ridiculous. It's we have whole loans. And it's ridiculous.

Speaker #3: But that's okay. We're playing long ball. I sort of painful on the mark. And I fear for our shareholders, particularly the retail that doesn't probably understand what's going on.

Barry Sternlicht: That's okay. We're playing long ball. It's sort of painful on the mark, I fear for our shareholders, particularly the retail that doesn't probably understand what's going on as much, is nervous that we're going to go the way of some of the other mortgage REITs. It's structurally not really possible right now, the way we've built the company. We'll see how this plays out, short term, I think some of our peers that were a little more aggressive on the recovery or the straight line than they should have been. We too were surprised, by the way, by some of the reports of these other firms. Again, look at the amount of capital we're putting out, new stuff, 2.0 stuff, versus in the past. Record deployments. What did we put out already this quarter? You just said it.

Speaker #3: As much. And as nervous that we're going to go the way of some of the other mortgage rates. It's structurally not really possible right now.

Speaker #3: The way we've built the company. So we'll see how this plays out. But short term, I think some of our peers that were a little more aggressive on the recovery or the straight line and then they should have been and we too were surprised, by the way.

Barry Sternlicht: We'll see how this plays out, short term, I think some of our peers that were a little more aggressive on the recovery or the straight line than they should have been. We too were surprised, by the way, by some of the reports of these other firms. Again, look at the amount of capital we're putting out, new stuff, 2.0 stuff, versus in the past. Record deployments. What did we put out already this quarter? You just said it.

Speaker #3: By some of the reports of these other firms. So but again, look at the amount of capital we're putting out and new stuff, 2.0 stuff versus in the past record deployments.

Speaker #3: And what did we put out already this quarter? You just said it.

Speaker #4: 2.7 billion for the year, 1.7 billion already closed in July. We should have the biggest origination quarter in a couple of years this quarter.

Jeff DiModica: $6.7 billion for the year, $1.7 billion already closed in July. We should have the biggest year-to-date next quarter in a couple of years, this quarter.

Jeffrey DiModica: $6.7 billion for the year, $1.7 billion already closed in July. We should have the biggest year-to-date next quarter in a couple of years, this quarter.

Speaker #3: So I mean, feel really good about that. And again, when we can't tell you that, then you should worry. Right now is not the time.

Barry Sternlicht: We feel really good about that. Again, when we can't tell you that, you should worry. Okay? Right now is not the time. You should look at it as a hidden earnings machine as we get this stuff back online. Gosh, I can't get our team to build out that stuff faster. They do have to do it so it doesn't fall down. We do have to turn around these assets we're getting back. It's just the nature of the business.

Speaker #3: You should look at it as a hidden earnings machine. As we get this stuff back online, but gosh, it does just I can't get our team to build out that stuff faster.

Speaker #3: I mean, they do have to do it so it doesn't fall down. So.

Speaker #2: And we do have to turn around these assets we're getting back. It's just the nature of the business.

Speaker #1: The only quick follow-up to that would be is I have to imagine and you've alluded to this, Barry, that buying back stock has got to be at the top of the best investments you can make list right now with the implication that the loan book at 1450.

Gabriel Poggi: The only quick follow-up to that would be is, I have to imagine, and you've alluded to it, Barry, that buying back stock has got to be at the top of the best investments you can make list right now with the implication that the loan book is $1,450.

Barry Sternlicht: We have an authorization and-

Speaker #1: Yeah, you do.

Gabriel Poggi: Yeah, you do. Okay.

Speaker #3: We have what are we authorized to buy back? 400 million. We're well aware of it. And we've had to be out of the market because we knew our earnings were, but as of this moment, we can go back in the market.

Barry Sternlicht: What are we authorized to buy back? $400 million. We're well aware of it, and we've had to be out of the market because we knew our earnings were, but as of this moment, we can go back in the market. We're on your side. Thank you. Have a great summer, the rest of it, and we'll see you in the fall. Bye.

Speaker #3: So we are on your side. Thank you. Have a great summer the rest of it. And we'll see you in the fall. Bye-bye.

Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.

Q2 2026 Starwood Property Trust Inc Earnings Call

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