Starwood Property Trust Income Down 75%, Barry Sternlicht Says Fed Is 'Crushing' Industries Like CRE

Starwood Property Trust reported a 75% drop in its third-quarter net income to $47.4M, down from $194.5M during the same quarter a year ago.

Even so, Starwood Chairman and CEO Barry Sternlicht said during the company's earnings call on Wednesday that now is the time for private investors such as Starwood to snap up deals. The company has already been doing so, making $2.7B of new investments over the last 12 months.

“Real estate transactions are way down — 60%, 65%,” Sternlicht said. “That limits the number of opportunities we have to deploy capital. ... But what's more interesting is that the regional banks, which have loaded up on $1.9T of real estate debt, and the money center banks are getting tremendous pressure ... to reduce their exposure to real estate.

“That has left us with probably one of the best lending environments, maybe the best lending environment, since we started this firm back in 2009 in the [Global Financial Crisis], when there was no credit. So there are really remarkable opportunities for private credit.”

Sternlicht criticized the actions of the Federal Reserve and Fed Chairman Jerome Powell in raising interest rates, though he did say that “Powell and his crew” now seem to be paying a little more attention to the data.

“[Powell's] after inflation, but he's crushing other industries that are material to the U.S. government, like real estate, where significant capital gains help fuel the revenues to offset the increased interest expense of spending all this money on our $33T of debt,” Sternlicht said.

Rents are still increasing, but they aren't at the 10% and 20% levels of recent years, he said, adding that inflation is now falling below 2%, except for the wildcard of oil prices.

“We're all sort of scratching our head with oil around $80 with the situation in the Middle East,” he said.