Sternlicht gets political on earnings call

The Starwood Property Trust CEO made his comment during a Q3 earnings call, where the firm reported a jump in net income

Nov.November 08, 2019 01:49 PM
Barry Sternlicht and Lord & Taylor’s Fifth Avenue

Barry Sternlicht and Lord & Taylor at 424-434 Fifth Avenue

Starwood Property Trust’s CEO Barry Sternlicht sees an economic slowdown in the near future as the country faces a new presidential election.

“I’ve never seen an election as long as I have been alive as polarizing,” Sternlicht told analysts on the company’s third quarter earnings call Friday. “Ross Perot Jr. was a billionaire and probably not the greatest candidate, and he got 19 percent of the electorate… The country needs someone in the middle. Sorry I am being political on an earnings call.”

Concerns about the election didn’t affect Miami Beach-based Starwood’s results, however, as third quarter earnings aligned with analysts’ expectations of 49 cents a share. Net income was $140.4 million, up 66 percent from $84.5 million in the same period of 2018, reflecting increased interest income on loans outstanding.

During the third quarter, Starwood made a number of large loans, including a $300 million loan for a 3.4 million-square-foot mixed-use, waterfront property in Washington D.C. It also made a $250 million mortgage for the construction of 79 residential units and a 50-key five-star hotel in London.

The company’s total revenue from commercial and residential lending grew 3.3 percent to $163.8 million in the third quarter from $158.6 million in the third quarter of 2018. Demand for lending was propelled by lower interest rates and spurred by the firm’s international growth, Sternlicht said. Forty-four percent of its commercial loans were international.

Analysts on the call eagerly awaited news about the company’s loan for WeWork’s purchase of Lord & Taylor’s Fifth Avenue flagship for $850 million. WeWork financed the deal with a $900 million loan from JPMorgan Chase, Starwood Property Trust and a third offshore lender.

WeWork’s real estate assets have come into question after the company’s valuation tanked from $47 billion to $8 billion and SoftBank agreed to a cash injection.

Sternlicht said WeWork “can’t walk away from the asset. Its a 15-year corporate guarantee. At this point, it is their single largest credit liability on their balance sheet. They can sublet or sell the building.”

Sternlicht said the company has been approached to buy its note on the building. “We have been noodling on whether or not we want to do that,” he said.

Last quarter, Starwood saw earnings fall by nearly a third as the company wrote down losses from struggling malls.

“I don’t see any way that the economy won’t slow,” Sterlicht told analysts on the third quarter earnings call. He admitted that hotels and retail properties throughout the country are still struggling, but said Starwood is seeing growing demand for multifamily properties, especially in Florida.

Starwood Property Trust’s shares rose 0.33 percent to $24.27 at 1:35 p.m.

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