Starwood Property Trust’s stock dropped 4% in a single morning after the company reported a sharp decline in net income for the second quarter of 2026. Shares now trade at $15.55, down 6% from a month ago and nearly 20% lower than the same period last year.
The Miami-based lender and investment firm posted $6.6 million in net income for the quarter. This marked an 87% decline from the $51.9 million reported in the fourth quarter of 2025 and a 95% drop from the $129.8 million earned in the same quarter of 2025. Distributable earnings, however, rose slightly to $151.5 million, up from $147.3 million in the previous quarter and $151.1 million a year earlier.
CEO calls market reaction “throwing the baby out with the bathwater”
During an earnings call, Chairman and CEO Barry Sternlicht said he was surprised by the stock’s reaction and argued the company’s fundamentals remained solid. He described the response as excessive, acknowledging concerns about the firm’s large loan portfolio and mortgage business.
Sternlicht expressed confidence in restoring earnings and dividend coverage. He highlighted improving conditions across U.S. and European property markets, particularly in multifamily housing, self-storage, senior housing, and logistics. “At a property level, almost every asset class is recovering,” he said. “Everything is improving.”
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Demand for commercial real estate remains strong, he added, while supply constraints support investments in office, retail, logistics, and multifamily sectors. “Rents in multifamily are finally rising after several quarters of stagnation,” Sternlicht said. “Conditions are improving market by market.”
Starwood reported second-quarter revenue of $513 million, a slight increase from $512.5 million in the first quarter and $444.28 million a year earlier. Rental income climbed to $87.8 million, up from $80 million in the previous quarter and $28.2 million in the same period of 2025.
The commercial real estate lending business saw $1.4 billion in originations during the quarter. Of this, $754 million was funded, and $260 million was drawn from existing commitments. After repayments of $447 million, the funded loan portfolio reached a record $17.3 billion. In July alone, the firm received $554 million in repayments, including $170 million tied to office loans.
President Jeffrey DiModica said the firm had strategically deployed $6.7 billion year-to-date despite economic volatility. He projected the third quarter would be the strongest origination period in the company’s history but noted three multifamily assets had been downgraded to the highest risk rating: a $73 million property in Phoenix, a $63 million asset in Clearwater, Florida, and a $74 million complex in Mesa, Arizona.
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The downgrades stem from higher interest rates and softer conditions in certain Sun Belt multifamily markets, where new supply has reduced cash flow. DiModica pointed out that Starwood holds over $6 billion in multifamily loans, representing 20% of its balance sheet and twice the size of any other exposure. The company expects to resolve more than $800 million in underperforming assets this year by improving occupancy and performance before exiting them.
Despite his frustration, Sternlicht remained optimistic about the firm’s real estate operations. “We’ll find the best way to maximize shareholder value and rebuild our book value,” he said. “I’m feeling positive about the future and the earnings potential of these assets.”
The firm’s success may depend on whether its bet on multifamily and logistics assets succeeds. With nearly a fifth of its balance sheet tied to one sector, even small improvements in occupancy and rents could ease pressure on earnings.
For now, leadership is counting on a gradual recovery.
