Starwood Capital starts to reap benefits from distressed deals

August 21, 2013 01:40PM

Barry Sternlicht’s recent $246 million sale of four high-end apartment buildings to Boston-based real estate investment trust Winthrop Realty Trust signals the start of a lucrative unloading of assets the Starwood Capital head purchased from Corus Bank back in 2009.

At the time, competitors sniffed at the nearly $2.8 billion Sternlicht plunked down for Corus’ failed assets, deeming it a gross overpayment. But the sale, which Sternlicht told the Wall Street Journal has doubled the value of the $1.4 billion investment that Starwood, along with private investment firms TPG Capital, Perry Capital and WLR LeFrak, made during the downturn, proves that investors who played a risky hand during the depths of the downturn are now beginning to see results.

“We’re starting to see the first waves of flips from investors who bought distressed deals in 2009,” Dan Fasulo, a managing director at Real Capital Analytics, told the Journal. “It’s nice to see them harvesting some of the gains from that purchase.”

Federal regulators seized Corus — once one of the country’s top lenders to condominium developers — in September 2009, when many of its condo construction loands went into nonaccrual or foreclosure. The Federal Deposit Insurance Corporation then took control of the company’s $4.5 billion loan portfolio and established a joint venture to own loans, with Starwood et al. snagging a bid for 40 percent of the venture.

The FDIC, which maintained the other 60 percent, stands to take 60 percent of Starwood’s gains in the portfolio sale.

This is the first chunk of a 13-building portfolio of rental apartments that Starwood will sell.

The buildings, 44 Montroe in Phoenix; the Highgrove in Stamford, Conn.; the Mosaic II in Houston; and the San Pedro Lofts in Los Angeles are all luxury buildings that are between 87 and 95 percent occupied. [WSJ]Julie Strickland