“Tsunami of change” in blue states a “dangerous game,” says Barry Sternlicht
Starwood boss said the REIT “came out galloping from the crisis”
Starwood Property Trust CEO Barry Sternlicht said New York’s rent laws place so many restrictions on building owners that a friend of his, a landlord worth billions, refers to himself as “a janitor.’’
Sternlicht, speaking on Starwood’s first-quarter earnings call, said his unnamed friend can’t increase rents or renovate his New York properties.
The landlord’s dilemma reflects a “tsunami of change of attitude in these dark-blue states,’’ Sternlicht said. Legislators in New York and other states run by Democrats who want property values to fall are playing a “dangerous game,” he said.
“You can see the future if it doesn’t change,’’ Sternlicht said. “Go to Mumbai,” where landlords have no incentives to fix up their buildings and many are falling apart.
Starwood has performed well during the pandemic, thanks to its focus on credit quality and prudent underwriting, Sternlicht said.
“We didn’t come out limping from this crisis,’’ he said. “We came out galloping from the crisis.’’
The real estate investment trust closed two collateralized loan obligations (CLOs) totaling $1.8 billion, which Starwood said allowed it to reduce risk on its balance sheet. Sternicht referred to it as a “fortress balance sheet.”
“We built this company to outperform in distress and patiently waited,” said Jeff DiModica, president and managing director.
DiModica said Starwood’s international loan portfolio has grown 35 percent year-over-year.
Greenwich and Miami Beach-based Starwood reported $111 million in first quarter earnings, or 38 cents per share, up 67 percent from the same period in 2020. The REIT reported $287.2 million in revenue for the first quarter, down about 8 percent from $312.6 million in the same period of the previous year.
The company’s stock fell to $24.90 per share as of 1.48 p.m. Thursday following the earnings call, a 1.2 percent drop from when the market opened.
“Real estate isn’t Wayfair. This isn’t Peloton,’’ Sternlicht said. “Worldwide, real estate hit a wall and to come out of the covid crisis definitely stronger than we went in… really speaks to the credit quality and our underwriting process and the equity-first attitude we have when we make a loan.”
The office market is still “yellow,” according to Sternlicht, especially in New York City and San Francisco. Sternlicht said his Miami team is working out of the office, but acknowledged that “it really does affect the poor more than the wealthy who maybe are calling in from the Hamptons.”
When it comes to hospitality, Sternlicht said it will be a while before group business and international travel return, but pointed to the success of luxury hotels and resorts and sellouts expected this summer. Rates have doubled or tripled for some properties.
“This summer is going to be a free-for-all. America is going to party this summer like it’s 1999,” he said, adding that some cancellations are expected.
Sternlicht also said ESG (Environmental, Social, and Corporate Governance) is important to Starwood. “We could have increased rents 5 percent and we chose not to do anything,” he said, referring to the trust’s affordable housing portfolio in Florida. “We did the long-term right thing by not making matters worse for [tenants].”