In a significant move poised to reshape the landscape of real estate investment and finance, Starwood Property Trust (NYSE: STWD) has announced its definitive agreement to acquire LNR Property LLC (LNR). This landmark acquisition, finalized on January 24, 2013, represents a total purchase price of $1.05 billion in cash and signifies a strategic partnership that leverages the strengths of both entities, particularly emphasizing the robust capabilities of Lnr Partners. Starwood Capital Group, a leading global private investment firm and parent company to Starwood Property Trust, played a crucial role in this acquisition, acting on behalf of Starwood Distressed Opportunity Fund IX.
LNR Property LLC, a distinguished firm established in 1969, brings to the table a wealth of experience and a diversified portfolio encompassing real estate investment, finance, management, and development. With a substantial team of over 550 professionals spread across 12 offices in the US and Europe, LNR has solidified its position as a leader in the industry. This acquisition by Starwood Property Trust not only expands Starwood’s operational scale but also integrates LNR’s extensive network and expertise, creating a powerful synergy within the lnr partners framework.
Acquisition Details and Business Segments of LNR Partners
The agreement outlines a clear division of LNR’s assets. Starwood Property Trust is set to acquire key LNR business segments for a total of $856 million. These segments are strategically chosen to enhance Starwood’s existing portfolio and operational capabilities, particularly through the integration of lnr partners’ established platforms:
- US Special Servicer: As the largest US special servicer, this segment boasts an impressive portfolio of over $131 billion in loans under management and real estate owned. This acquisition immediately positions Starwood Property Trust as a dominant player in loan servicing and management.
- US Investment Securities Portfolio: This portfolio includes legacy whole loans, CMBS (Commercial Mortgage-Backed Securities), and CDO (Collateralized Debt Obligation) investments, providing a diverse range of assets to bolster Starwood’s investment profile.
- Archetype Mortgage Capital: This commercial real estate conduit loan origination platform is designed to offer unique financing solutions across the United States. Integrating this platform will significantly enhance Starwood’s origination capabilities and market reach.
- Archetype Financial Institution Services: Focused on acquiring, managing, and servicing portfolios of small balance commercial loans and real estate assets, this segment adds another layer of specialization to Starwood’s service offerings.
- LNR Europe: Comprising Hatfield Philips, the largest independent primary and special servicer in Europe, and LNR European Investment Fund, a European CRE (Commercial Real Estate) debt fund, this segment provides Starwood with a significant foothold and operational base in the European market.
- Auction.com (50% Interest): Acquiring half of LNR’s interest in Auction.com, the nation’s leading real estate exchange for residential and commercial properties, grants Starwood access to a robust auction platform and expands its reach in property disposition and acquisition.
Alt text: Map highlighting the locations of LNR Property LLC offices across the United States and Europe, showcasing their extensive geographical reach as a leading real estate firm.
In a parallel transaction, Starwood Capital Group will acquire LNR’s US Commercial Property Group and the remaining 50 percent ownership interest in Auction.com for $197 million. This division ensures that each entity leverages the most relevant aspects of LNR’s diverse operations, maximizing the strategic benefits of this acquisition for both Starwood Property Trust and Starwood Capital Group, and solidifying the lnr partners’ position in the market.
Strategic Rationale and Benefits of LNR Partnership
Barry Sternlicht, Chairman and Chief Executive Officer of Starwood Property Trust, emphasized the transformative nature of this acquisition. He highlighted that it “diversifies Starwood Property Trust’s revenue sources, adds significant scale to our operating platform, and dramatically expands our proprietary origination capabilities.” Sternlicht believes that combining LNR’s robust operational capabilities with Starwood Property Trust’s superior capital access and underwriting expertise will forge a “long-term and sustainable competitive advantage” for lnr partners.
Alt text: Headshot of Barry Sternlicht, Chairman and CEO of Starwood Property Trust, a key figure in the acquisition of LNR Property LLC.
Toby Cobb and Justin Kennedy, Co-Chief Executive Officers of LNR, echoed this sentiment, expressing enthusiasm about joining the Starwood family. They noted their prior partnerships on large transactions and recognized that “Starwood Property Trust’s unique capital and investment capabilities would be a perfect complement for LNR’s operating platform and diligence capabilities.” This partnership, they believe, creates a “truly powerful combination” that will drive future business growth for lnr partners.
The strategic benefits of this acquisition for Starwood Property Trust are multifaceted:
Expanded Investment Pipeline
The acquisition significantly broadens the scope of potential capital deployment opportunities. Lnr partners bring an extensive network with over 15,000 touchpoints with borrowers representing over $125 billion in loans. This includes a proven conduit originator, a small balance commercial real estate loan platform, and unmatched CMBS investing capabilities. Furthermore, LNR’s leading platform in Europe and ownership interest in Auction.com will provide a continuous and robust deal flow, enhancing investment opportunities for Starwood Property Trust.
Scale and Diversification
This acquisition establishes Starwood Property Trust as a full-service real estate finance company. It immediately diversifies its business lines to include CMBS securities and special servicing. These additions are particularly strategic as they are often counter-cyclical investments, providing a natural hedge against economic downturns. The enhanced scale and diversification through lnr partners position Starwood to navigate various economic scenarios more effectively.
Enhanced Risk Management
Integrating lnr partners brings a premier global platform of real estate underwriters and workout specialists. This team has access to an unmatched proprietary database on the performance of over $400 billion of commercial real estate loans and underlying assets. This wealth of data and expertise provides Starwood Property Trust with an industry-leading underwriting and risk assessment capability, driven by a significant information advantage.
Alt text: Visual representation of a diverse commercial real estate loan portfolio, highlighting the scale and complexity managed by firms like LNR Property LLC.
The acquisition is anticipated to be accretive to Starwood Property Trust’s earnings and cash flow in both 2013 and 2014, even before accounting for transaction expenses. This positive financial outlook is expected to enhance dividend coverage for Starwood Property Trust’s shareholders, underscoring the financial benefits of the lnr partners integration.
About LNR Partners (LNR Property LLC)
LNR Property LLC stands as a market leader in commercial real estate finance, management, and development. Since its inception in 1969, LNR has cultivated deep expertise and demonstrated capability in investment, management, and servicing of commercial real estate assets, secured real estate loans, and loan pools. Headquartered in Miami Beach, Florida, lnr partners operate across 12 offices in the US and Europe.
LNR’s Commercial Property Group focuses on value creation through acquiring, developing, repositioning, managing, and selling interests in commercial and multi-family real estate, including land. Their Asset Services Group is a national leader in buying non-investment grade and unrated CMBS and is recognized as the leading special servicer in the U.S. LNR’s comprehensive service offerings and extensive market presence make it a valuable addition to the Starwood platform.
About Starwood Property Trust and Starwood Capital Group
Starwood Property Trust, Inc. is primarily focused on originating, investing in, financing, and managing commercial mortgage loans and other commercial real estate debt investments. This includes commercial mortgage-backed securities (CMBS) and other real estate-related debt investments. Starwood Property Trust also engages in investments in residential mortgage-backed securities (RMBS), residential real estate owned, and may invest in non-performing loans and commercial properties. The company is externally managed and advised by SPT Management, LLC, an affiliate of Starwood Capital Group, and operates as a real estate investment trust (REIT) for U.S. federal income tax purposes.
Starwood Capital Group is a leading private, U.S.-based investment firm with a core focus on global real estate. Founded in 1991, the firm has raised over $16 billion of equity capital and invested $13.7 billion representing $36 billion in assets across various funds. With over $22 billion of assets under management, Starwood Capital Group has a significant global footprint with offices in major cities across the US and affiliated offices in Europe, Asia, and South America. Their investment strategy spans nearly every class of real estate, demonstrating their broad expertise and market influence.
Conclusion
The acquisition of LNR Property LLC by Starwood Property Trust marks a transformative moment for both companies. By integrating the diverse and robust platform of lnr partners, Starwood Property Trust is set to enhance its market position, diversify its revenue streams, and strengthen its operational capabilities. This strategic alliance not only promises significant financial benefits but also establishes a powerful force in the real estate finance industry, poised for sustained growth and competitive advantage. The combined expertise and resources of Starwood Property Trust and LNR are expected to deliver enhanced value to stakeholders and drive innovation in the dynamic landscape of global real estate investment.
