Starwood Property Trust's share price plummeted 4 per cent in a single morning, just hours after its second-quarter earnings release, as the company reported significant drops in net income. Starwood's stock is currently trading at $15.55 per share, representing a 6 per cent decrease from the previous month and almost 20 per cent year-on-year.
The Miami Beach-based lender and investment firm reported a net income of only $6.6 million in the second quarter of 2026. This marks an 87.3 per cent decrease from $51.9 million in the fourth quarter of 2025 and almost 95 per cent less than the $129.8 million net income in the second quarter of 2025. Distributable earnings amounted to $151.5 million in the second quarter, an increase from $147.3 million in the previous quarter and $151.1 million in the same period last year.
Management expresses surprise and optimism
Barry Sternlicht, Chairman and CEO of Starwood, stated during the quarterly earnings call on Thursday that he was “somewhat surprised by the stock price reaction this morning” and emphasised that the company's fundamentals are strong. Sternlicht suggested that analysts appeared concerned about the company's large loan and mortgage business. He stressed that Starwood viewed this differently and was confident in returning to earning power to secure the dividend and restore its coverage.
Sternlicht noted that at the property level, almost every asset class in the US and Europe was “in repair” and “everything is improving”. He specifically highlighted positive signs in real estate investment trusts (REITs) across multifamily, self-storage, seniors housing and logistics sectors. He stressed that demand was high across all commercial property sectors and the “non-existent supply” supported investments in office, retail, logistics and multifamily assets. “You’re starting to see improvements in rents in the multifamily sectors, which we’ve been waiting for how many quarters,” he said. “Things are improving market by market.”
Financial details and challenges
Starwood reported total revenue of $513 million for the second quarter, a slight increase from $512.5 million in the first quarter of 2026 and quarterly revenue of $444.28 million in the same period last year. Rental income rose to $87.8 million, up from $80 million in the previous quarter and $28.2 million in the second quarter of 2025.
In the commercial real estate (CRE) lending sector, Starwood's CFO Rina Paniry reported that Starwood originated $1.4 billion in CRE loans, of which the company funded $754 million and $260 million of existing loan commitments. After accounting for repayments of $447 million, the company's funded loan portfolio grew to a record $17.3 billion. Furthermore, Starwood received $554 million in repayments in July, of which $170 million were for office loans.
Jeffrey DiModica, President of Starwood, stated during the conference call that “despite a volatile macroeconomic environment, we have deployed almost a record $6.7 billion earnings-accretive this year. The breadth of opportunities on our global investment platform continues to grow.” He mentioned that the third quarter of 2026 is positioned to be Starwood's “strongest acquisition quarter ever,” but also addressed three multifamily properties that received the highest possible risk rating in the quarter:
- —a $73 million property in Phoenix
- —a $63 million multifamily property in Clearwater, Florida
- —multifamily properties worth $74 million in Mesa, Arizona
DiModica explained that “these downgrades reflect the impact of higher forward rates and broader softening in certain Sun Belt multifamily markets, where increased supply – most of which is behind us – has put pressure on short-term cash flow.” He noted that Starwood holds over $6 billion in multifamily loans, accounting for 20 per cent of its balance sheet and double any other exposure.
Sternlicht expressed frustration with interest rate policy under the new Federal Reserve chairman, Kevin Warsh. He fundamentally “cannot understand the Fed's position to raise interest rates in this economy,” as any rate hike “will not open the Strait of Hormuz, will not change the price of oil in the US – it will only affect the interest-rate sensitive part of this economy.” Nevertheless, Sternlicht remained optimistic about Starwood's underlying real estate operations, emphasising that the company would proceed “property by property” to improve performance.
