Starwood's Net Lease Gamble
Let's add a little duration to this MREIT
UPDATED: There was an error in the “model” below that has been corrected
As President Trump makes a daily practice of pillorying Jerome Powell for failing to lower interest rates, let’s not forget the pioneer of the genre: Barry Sternlicht. Sternlicht told CNBC that the Fed was "attacking the economy with a sledgehammer, and they don’t need to," all the way back in March of 2023. A view that has, thus far, not been supported by the subsequent data.
Starwood STWD 0.00%↑ is now putting their money (a lot of it) into bringing net lease operator Fundamental Income Properties into the complex, making an implicit bet on long-term rates falling just as the 30-year approaches a five-year high.
Starwood, with a market capitalization of $7 billion, is buying Fundamental for $2.2 billion, inclusive of $1.3 billion of existing debt. The transaction will nearly double STWD’s Property Segment, currently containing the Woodstar affordable housing business and a medical office building portfolio (plus one DC multifamily property).
Get up to speed on STWD here:
Starwood Property Trust
Even if you are unfamiliar with Starwood’s sprawling real estate empire, you are likely familiar with its Chairman, Barry Sternlicht. A too-tanned Sternlicht has been a fixture in financial media, calling for the Fed to cut rates practically since they began raising them. This is self-serving to a large commercial real estate owner like Sternlicht. His 32-year-old firm has around $115 billion of assets under management; by some measures, it is the largest owner of apartments in the U.S.
What we know about Fundamental Income Properties
Fundamental Income Properties is a net lease real estate platform founded in 2019. Following a $500 million equity commitment from Brookfield, the company rapidly scaled to a +$2 billion portfolio in just five years. Their first major deal was a $50 million purchase of a Carvana facility in Tolleson, Arizona.
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