Starwood Capital Markets
Hi everyone, can someone provide color on this group as well as what technicals to expect if I am interviewing for this group? I had a HH reach out to me and I was wondering. I am fairly unfamiliar with real estate capital markets.
CRE valuation methods - cap rate, sales comps, DCF, cost analysis
LTV, DSCR, Debt Yield. Dark Value analysis
For retail properties - sales PSF, occupancy cost.
Basic Bond stuff will help - bonds trade over the J-curve, loans price over the P-curve (but shifting increasingly to J-curve). Hedging instruments like CMBX. Velocity is the best hedge, etc. Look up where new issuance and secondary are trading.
What are a p-curve and j-curve in this context?
P-curve here is SOFR swap rate. J-curve here is the U.S. Treasury yield.
great resource below:
https://www.chathamfinancial.com/technology/us-market-rates
Thanks. I’ve never heard anyone refer to this as the “p-curve” and “j-curve” (and have worked for a top REPE fund for 10+ years investing in opportunistic debt and equity). Maybe it’s bond jargon but a quick Google search doesn’t pull up much either.
A better way to think about this is that short term term (=5yrs) transitional debt (the kind that Starwood normally employs in its value-add acquisitions) is almost always priced over a floating rate (which is almost always SOFR, usually provided by debt funds). Longer term “permanent” financing (7-10yrs, sometimes 5) is usually fixed rate, priced over treasuries or swaps with the same tenor as the loan term (usually provided by life cos, banks, and CMBS).
Bonds are less common for real estate deals unless you have a very large portfolio or large single asset (SASB CMBS) or a stabilized asset where the loan will be securitized with other loans (Conduit CMBS). CLOs are also available for transitional assets. The problem with securitized debt is the lack of prepayment flexibility given expensive prepayment penalties (defeasance). The benefit is that CMBS will often provide large cash-outs to the borrower, often allowing the borrower to pull out all of its equity while still owning the real estate.
well said, thanks. traditionally those larger SASB CMBS were benchmarked off of floating rate, which most Conduit CMBS is fixed rate. the CLO market is very frozen right now. CMBS is tough to execute today due to index interest rate volatility, bond spread volatility and hedging costs. The largest buyers of CMBS are also institutional owners of real estate. Think of Office properties - there is a lot of distress and bond buyers are impacted elsewhere in their portfolios so they are being very cautious and conservative with new issuance.
Is this for an analyst position?
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