Starwood Blames Uncertain Market Dynamics For 50% Dublin Office Loan Write-Down

Starwood European Real Estate Finance said it has written its office loan portfolio in Ireland down by 50% in a market update on the remaining properties in an investment first made in 2020.

The write-down relates to a €35.2M mezzanine loan made in 2020 to Blackstone as it bought several prime Dublin offices from Starwood, which in turn provided funding to Blackstone for the acquisition. Blackstone’s €535M purchase of the combined 600K SF of Dublin offices included the Iveagh Court, the Watermarque Building, 29-31 Adelaide Road and 75 St Stephen’s Green.

Starwood provided the loan on a portfolio of 12 buildings, and the sale of some assets in 2021 and 2022 reduced the balance of the loan. As of 30 September, the remaining balance, including accrued interest, was €25.9M secured against a residual portfolio of seven properties.

However, based on new operational updates and “challenging local office market dynamics,” the Starwood board has provided a 50% impairment of the company’s loan, equivalent to €12.9M. 

Starwood had highlighted the Irish real estate loan portfolio in July when the company provided an update, saying the “underlying assets comprise seven well located European city centre CBD buildings and are well tenanted, albeit certain assets are expected to require capital expenditure to upgrade to Grade-A quality to retain existing tenants upon future lease expiry events.”

Starwood said at the time that the loan remained in compliance with its third-party senior loan facility and the group’s mezzanine loan facility, but it warned that “persisting challenging market dynamics” meant the group was working with Blackstone and a valuation and advisory firm to identify future capital expenditure needs, funding sources, exit values and the business plan to exit.

On the value markdown, Starwood said the loan recovery value may be above or below its current markdown because of ongoing uncertainty related to the various business scenarios.

As of 31 August, Starwood’s net asset value was £203.7M. After the impairment of the Irish loan, the adjusted NAV is £192.8M.

The company has so far returned £210M to shareholders in compulsory redemptions, in accordance with its “orderly realisation strategy” adopted in January 2023, equivalent to 50.8% of its NAV as of 31 January 2023.