Starwood Property Trust (NYSE: STWD) reported a third-quarter GAAP net loss of $389.7 million, or $1.08 per diluted share, after setting aside $336.6 million for expected credit losses. The Miami Beach, Fla., lender said in its Nov. 6 earnings release that rising interest rates were the reason, since higher rates squeeze the borrowers on a loan book that is mostly floating-rate.
The loss is a sharp turn from the second quarter, when the company earned $6.6 million in GAAP net income and $151.5 million in distributable earnings, as RealtyWire reported in August. Third-quarter distributable earnings, the non-GAAP measure Starwood uses to pay its external manager and to guide its dividend, fell to $116.8 million, or $0.31 per diluted share. Before realized gains and losses on commercial loan resolutions, distributable earnings were $155.2 million, or $0.41 a share. The board declared a dividend of $0.48 per share.
Why Starwood Property Trust raised its reserve
The company’s quarterly report on Form 10-Q puts the provision down to rates, not to trouble with a few loans. Costs in the Commercial and Residential Lending segment rose $313.2 million from the second quarter to $539.9 million, “primarily due to increases of $307.0 million in credit loss provision,” the filing says. It continues: “The increase in the credit loss provision is the result of increased risk of repayment shortfalls associated with higher projected interest rates. Because our loan portfolio is predominantly floating-rate, higher rates create an increased debt service burden for our borrowers. Higher rates also contribute to higher capitalization rates and lower property values, placing pressure on borrowers’ ability to refinance or sell the underlying properties.”
That segment also took a $121.4 million loss on the change in fair value of mortgage loans, and the company recorded $32.2 million of non-cash property impairments.
Chairman and CEO Barry Sternlicht summed up the quarter in the release. “The third quarter of the year was somewhat historic. Interest rates skyrocketed and the forward yield curve moved sharply higher,” he said. “Although our borrowers are feeling the pain of higher interest costs, our balance sheet and liquidity remain very strong.” He said the company still expects “to resolve almost half of the underperforming assets we started the year with.”
The same rate shock showed up in housing finance. Mortgage rates set a two-year high in October before easing for three straight weeks to 7.18%. Starwood’s provision shows that pressure reaching commercial borrowers whose loans float with short-term benchmarks.
Where the stress shows
The 10-Q shows the weak spots in the loan book. As of Sept. 30, five commercial loans with an amortized cost of $677.5 million and $81.6 million of residential loans were 90 days or more past due. Of the commercial total, $445.2 million, mostly a single loan carried at $419.7 million, was still accruing interest because it met Starwood’s criteria for continued interest recognition. Another three commercial loans totaling $346.8 million were on nonaccrual even though they were less than 90 days past due.
Some measures did improve. Non-credit-deteriorated loans on nonaccrual fell to $660.7 million at Sept. 30 from $967.7 million at the end of 2025, and the company returned a $107.9 million commercial loan to accrual status during the quarter.
Starwood is also still selling off property it took back through foreclosure. In September it sold a 500-unit multifamily property in Dallas, foreclosed in October 2024, for $74.0 million and booked a $10.8 million net loss. In August it sold a 256-unit multifamily property in Phoenix for $22.6 million, after recording a $21.6 million impairment on it in 2025.
Still lending, and buying back stock
Starwood kept lending despite the losses. It invested $3.2 billion during the quarter and $8.2 billion over the first nine months of 2026. That included $2.4 billion of commercial lending, which the company called its highest in four years, bringing that portfolio to what it described as a record $17.8 billion.
President Jeffrey DiModica said the company had refinanced and extended its corporate debt earlier in the year, “before the significant rate rise,” completing about $2.1 billion of financing transactions “at rates and spreads below those available today.” He also pointed to share repurchases, “purchasing a record $108 million in the quarter.”
The company also said Fitch reaffirmed its highest rating, CSS1, for LNR, Starwood’s commercial special servicer. Special servicers work out defaulted loans inside securitization trusts, and that business tends to pick up when credit weakens. Starwood says it has deployed $123 billion of capital since its founding and manages a $32 billion portfolio across debt and equity investments.
On our reading, the quarter shows rate risk turning directly into credit cost. Starwood did not report a cluster of new defaults; it raised reserves because higher projected rates make its existing floating-rate borrowers more likely to fall short. If rates stay high, the 10-Q’s own description of higher debt service, higher cap rates and lower values points to more loan resolutions like the Dallas and Phoenix sales. More lender results are on our commercial real estate page.
