Sternlicht’s Starwood Firms Agree to Buy LNR for $1.05 Billion

Barry Sternlicht’s Starwood Property (STWD) Trust Inc. and Starwood Capital Group LLC agreed to buy LNR Property LLC, the biggest manager of distressed U.S. commercial real estate loans, for $1.05 billion.

Starwood Property, the largest commercial-mortgage real estate investment trust, will pay $856 million for most of LNR’s businesses, including its U.S. special servicing unit and 50 percent of LNR’s stake in Auction.com, the companies said today in a statement. Starwood Capital, Sternlicht’s closely held investment firm, will buy LNR’s U.S. property-development unit and the other half of the Auction.com interest for $197 million.

The deal gives the Greenwich, Connecticut-based companies a window into some of the more than $1 trillion of commercial real estate debt scheduled to mature in the next five years in the U.S. and Europe, as well as access to pricing of troubled properties. LNR’s special servicer business, which represents bondholders in debt restructurings and foreclosures, oversees more than 1,100 delinquent securitized mortgages, according to data compiled by Bloomberg.

Sternlicht, 52, is the founder, chairman and chief executive officer of both Starwood companies.

LNR’s co-CEOs, Tobin Cobb and Justin Kennedy, will remain in those jobs, managing LNR as a separate business under Starwood Property ownership. The company was recapitalized in 2010 by a partnership that includes Vornado Realty Trust (VNO), Cerberus Capital Management LP, iStar Financial Inc. (SFI) and Oaktree Capital Group LLC. (OAK)

The deal is scheduled for completion in the second quarter, according to today’s statement.

Property Broker

Besides the U.S. special servicing unit and its share of Auction.com -- a property and loan broker that sells primarily online -- Starwood Property’s acquisition includes LNR’s U.S. investment portfolio, which has 203 securities in 97 CMBS trusts, plus another five collateralized debt obligation bonds, the companies said. It will also gain the European loan servicer Hatfield Philips and a European debt investment fund.

Starwood Property primarily originates and invests in commercial real estate loans and buys mortgage-backed securities. It had $3.6 billion of investments at the end of the third quarter, according to a November investor presentation on the company’s website.

The REIT has shown an interest in special servicers in the past. Starwood Property bid unsuccessfully on CWCapital Asset Management when it was for sale in 2010, Sternlicht said in a conference call in August of that year. That company is owned by affiliates of Fortress Investment Group LLC. (FIG)

To contact the reporters on this story: David M. Levitt in New York at dlevitt@bloomberg.net; Dan Levy in San Francisco at dlevy13@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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