The Distressed Deals Have Started

Walker & Dunlop CEO Willy Walker and Starwood CEO Barry Sternlicht at a 2018 Bisnow event.
Bisnow/Jon Banister
Walker & Dunlop Ceo Willy Walker And Starwood Ceo Barry Sternlicht At A 2018 Bisnow Event.

Starwood Capital has agreed a deal to put as much as $325M of new equity into a mortgage REIT managed by TPG, in one of the first significant distressed real estate deals to be completed since the beginning of the coronavirus pandemic.

In an announcement, New York Stock Exchange-listed TPG RE Finance Trust said it reached an agreement with opportunity fund manager Starwood to put an initial $225M into the company, with the option of putting a further $100M in before the end of the year if required.

Earlier this year, the REIT issued a going concern warning, saying it might be forced to sell assets at low prices to meet calls for cash from its own lenders, and that the impact of the coronavirus could cause the loans it made in sectors like hotels to go into default.

TPG is selling Starwood preferred shares with a coupon of 11%, and warrants to buy shares at $7.50 a share, which is 10% higher than TPG RE’s average share price over the past 30 days, but less than half the price before the pandemic broke out. Starwood saw off competition from Oxford Properties to recapitalize the company, Bloomberg said.

The company had 65 senior mortgages and one mezzanine loan as of 31 March, totalling $5.8B. Its shares have dropped 59% to $8.19 since the beginning of March. In April it hired Houlihan Lokey to advise it on bolstering its capital position.

The mortgage REIT sector had been earmarked as one to watch in terms of early signs of distress in the real estate sector, primarily because it has to mark the value of the loans it has made to market, which means they are revalued more rapidly than the loans made by traditional banks or unlisted lenders. As early as March, Colony Capital’s Tom Barrack said the sector would experience significant distress. 

The deal shows that Starwood chief executive Barry Sternlicht is good to his word: He said in April that the firm was “on offence” and looking for opportunities to buy that might be thrown up by the pandemic.

Continue reading this story with a free account

Log in or register
Sign up for more articles like this
Subscribe to Bisnow's National Newsletters
Related Stories

Why Hines Is Restarting Its Development Engine

How Integrated Infrastructure Can Help AI Data Centers Deploy Faster, Build Smarter

Nvidia Buys Stake In Data Center Power Company

Invesco Cuts Fees, Adds Incentives To Quell Fund Redemption Requests

Investors Anchor Big Capital Into Marinas, Betting On Shallow Supply

NYC Office Investor Warns It Could Go Under As Defaults Pile Up

Pinewood Studios Pays Owners £100M Dividend And Completes £300M Refinancing

Nike Closes 15 Stores Amid Tumultuous Year

Large Commercial Real Estate Sales Up 30% Despite Economic Headwinds

Evergrande Founder Sentenced To Life, 56 Others Sent To Prison In China

Loud And Clear: Why Aiphone Thinks Intercom Ownership Is Best For Multitenant Buildings

Coconut Grove Office Flipped For $15M Gain After One Year