Greetings. Welcome to the Starwood Property Trust first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the call over to your host, Zachary Tanenbaum, Director of Investor Relations.
Thank you, operator. Good morning and welcome to Starwood Property Trust earnings call. This morning, the company released its financial results for the quarter ended March 31st 2021, filed its Form 10-Q with the Securities and Exchange Commission, and posted its earnings supplement to its website. These documents are available in the Investor Relations section of the company's website at www.starwoodpropertytrust.com. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
I refer you to the company's filings made with the SEC for a more detailed discussion of the risks and factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. The company undertakes no duty to update any forward-looking statements that may be made during the course of this call. Additionally, certain non-GAAP financial measures may be discussed on this conference call. A presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through our filings with the SEC at www.sec.gov.
Joining me on the call today are Barry Sternlicht, the company's Chairman and Chief Executive Officer, Jeffrey F. DiModica, the company's President, Rina Paniry, the company's Chief Financial Officer, and Andrew Sossen, the company's Chief Operating Officer. With that, I am now going to turn the call over to Rina.
Thank you, Zachary. Good morning, everyone. This quarter once again highlighted the power of our diverse platform with distributable earnings, or DE, of $151 million, or $0.50 per share. We were active on both the left and right-hand sides of our balance sheet, deploying $2.7 billion of capital in the quarter, and successfully completing two CLOs totaling $1.8 billion after quarter end. I will start my segment discussion with commercial and residential lending, which contributed DE of $147 million to the quarter. In commercial lending, we originated $2.2 billion across 12 loans for an average loan size of $184 million. We funded $2 billion of these new loans, along with $175 million of preexisting loan commitments. These fundings were offset by $1.1 billion in loan repayments, bringing our commercial lending portfolio to a record $11.2 billion at quarter end.
We continue to see strong credit performance in our loan portfolio, with our weighted average risk rating improving from 2.7- 2.6 in the quarter and only one loan for $188 million rated in the 5 category. This loan comprises the majority of our limited retail exposure and was placed on non-accrual in the quarter. We believe that the principal and interest accrued to date on this loan are fully collectible. As of March 31st, only 2% of our loans are on non-accrual. The remainder are 100% current, and we have seen nearly all of our loans, which required partial interest deferrals during COVID, return to performing status. Since COVID began, we granted 11 partial interest deferrals for loans with a UPB of $1.1 billion. Today, we have only 1 $41 million retail loan remaining on its partial interest deferral of $84,000 a month.
Our weighted average LTV remains strong, falling again this quarter to 60.1%. We continue to see our sponsors support the significant equity in their assets with $582 million invested and $715 million committed since COVID began. Consistent with this positive credit performance, our general CECL reserve remained relatively flat at $61 million. As we have discussed previously, the CECL rules require that we take reserves on all loans, including newly originated loans. Although we recorded $1.4 million in reserves on new loans in the quarter, we also saw reductions in reserves for repayments and for improvements in performance on existing loans. As a reminder, these reserves are typically added back for DE purposes. However, during the quarter, we recognized a DE loss of $8 million related to an unsecured loan for which we recorded a specific GAAP CECL reserve last quarter.
Just two years ago, we discussed with you our first foreclosure on a loan that was net leased to a single grocery tenant who filed for bankruptcy. The 440,000 sq ft distribution center in Montgomery, Alabama, had a loan balance of $17 million, and at the time, we established an $8 million GAAP reserve based on its appraised value. Over the past two years, we leveraged the Starwood platform to re-lease and market the property. The property was sold this quarter for $31 million, resulting in a GAAP gain of $18 million and a DE gain of $8 million, a very successful outcome for our shareholders.
Turning to our residential lending business, we securitized $384 million of loans in our 10th securitization for a net securitization DE gain of $13 million and sold $87 million of our high LTV loans for a net DE gain of $4 million. These sales, net of purchases of $209 million in the quarter, brought our loan portfolio to a balance of $596 million, a weighted average coupon of 5.9%, average LTV of 67%, and average FICO of 732. Over the past several months, we have worked to transition the loans on our $2 billion Federal Home Loan Bank facility, which was fully repaid this quarter at its maturity. In connection with the transition, we executed a new $1 billion warehouse facility in the quarter, bringing our total non-QM financing capacity to $2 billion.
With these new facilities, we expect to realize returns on our loan book that are consistent with historical levels. Next, I will discuss our property segment, which contributed $22 million of distributable earnings to the quarter. Credit performance remained strong in this segment, with rent collections at 98% and weighted average occupancy remaining steady at 97%. This quarter, we obtained supplemental financing of $83 million for Woodstar II, our second affordable housing portfolio. The upsize increased the cash-on-cash yield for this portfolio to 18.8% and increased yields on the overall segment to 16.9%. The performance of our Florida affordable housing portfolio continues to exceed our expectations. Area median income levels, which govern rents for the over 15,000 units in this portfolio, were recently released. Higher median income for Northern and Central Florida, where this portfolio is concentrated, resulted in a blended rent increase of 4.1% for 2021.
This is in addition to the 4.7% increase released last year. These rents create a new floor from which rents cannot decrease going forward. Despite the new maximum rent levels, we did not increase rents on any of our affordable housing tenants last year due to COVID. We instead began rolling out these higher rents on January 1st and will continue to do so over the next 12 months. As a result, the effect on earnings will be gradual over the coming quarters. Next, I will turn to our investing and servicing segment, which reported DE of $24 million in the quarter. In our CMBS portfolio, we continued to opportunistically sell assets, with $12 million of securities sold in the quarter for a net DE gain of $3 million.
In special servicing, $517 million of loans entered servicing in the quarter, while a similar amount resolved, resulting in our active servicing portfolio remaining steady at $8.8 billion. As we have said before, we expect slightly longer resolution times and thus delayed fee recognition for the assets which recently entered servicing. Our named servicing portfolio ended the quarter at $80 billion. Finally, in our conduit, we securitized $85 million of loans in one transaction at profit levels consistent with last quarter. We typically see lower securitization volume in Q1 and expect to see significantly higher volume next quarter. Concluding my business segment discussion today is our infrastructure lending segment, which contributed DE of $7 million to the quarter. We acquired $86 million related to new loans and funded $14 million under preexisting loan commitments.
These fundings were offset by repayments of $19 million, increasing the portfolio to $1.7 billion at quarter end. We continue to be pleased with the credit performance of this portfolio, which once again had 100% interest collections in the quarter. I will conclude this morning with a few comments about our liquidity and capitalization. Subsequent to quarter end, we completed two CLO financings. Our inaugural $500 million infrastructure CLO, which was the first of its kind, and our $1.3 billion CRE CLO, the largest CRE CLO issued after the GFC. Both represent a significant expansion of our credit capacity and a continued diversification of our funding sources. They also include many structural benefits, including flexibility to provide replacement collateral, match funding, and the removal of recourse and credit marks. Jeffrey will discuss each of these in more detail during his remarks.
We ended the quarter with $7.3 billion of availability under existing financing lines, unencumbered assets of $2.8 billion, and an adjusted debt-to-undepreciated equity ratio of 2.3x . Pro forma for the two CLOs, this ratio is 2.1x , in line with last quarter. This credit capacity, in addition to our current liquidity of $642 million, provides us with ample dry powder to execute on our pipeline. With that, I'll turn the call over to Jeffrey for his comments.
Thanks, Rina. We are pleased with the performance of our stock price, which we believe recognizes the durability of our business model, our demonstrated ability to create shareholder value across market cycles, our ability to pay our dividend. To date, Starwood Property Trust shareholders have earned a greater than 13% annualized total return since inception in late 2009, the highest in our peer group. I will talk today about a few themes that we believe differentiated our business this past year and will continue to create value for shareholders in the coming quarters. The credit of our CRE loan book continues to improve. Collections are very high. Our base case modeling today suggests we will have little to no losses on our loan book as a result of COVID. I will discuss this more in detail later. The valuations on our owned properties continue to increase.
At our mark today, we have approximately $1.1 billion in unrealized gains, $200 million more than we have disclosed previously, and approaching $4 per share. Our liquidity and access to some of the cheapest capital in our sector is unparalleled. We could issue new five-year corporate bonds at 4% or below today, the lowest in our history. We have the benefit of having excess unencumbered assets on our balance sheet, which allow us to come to market early to create liquidity to pay off our $700 million of 5% notes maturing in December at their open date, September 1st, and accretively versus the existing 5% coupon. We were one of a few market participants who were able to take advantage of dislocated markets to make significant investments across our business every quarter since COVID began.
We had a very strong first quarter of 2021, deploying $2.7 billion, $2.2 billion of which was in our core CRE lending business, and we have continued that momentum into the second quarter. I'd like to start my sector remarks with a deep dive on our owned property portfolio. We became more defensive in making CRE loans in 2015 as we felt the debt markets had gotten too aggressive in terms of pricing, LTV, and structure. We slowed our originations in 2015 and began to use our excess liquidity to add core equity assets into our investment portfolio, taking advantage of favorable dynamics in the market and becoming a borrower rather than a lender. We purchased $3.2 billion of property assets over a three-year period at significantly higher cap rates than where the assets are currently valued today.
This property portfolio today has approximately $1.1 billion in gains in it at our marks and carries a 17% annual cash return at our basis. Our diversified model gives us the ability to pivot to invest in the best available opportunities across our seven business lines and highlights the power of our differentiated multi-cylinder platform. We felt the strategy would prove itself out in distressed and volatile markets and waited patiently for the markets to dislocate. When lending markets were frozen last spring, we bought almost $1 billion of residential mortgage loans with term non-mark-to-market financing at a 10% discount to where the same assets traded pre-COVID. These loans returned to par or higher soon after our purchase, and most have already been securitized, producing large gains and exemplary returns for our portfolio.
We have increased the size of our CMBS and energy infrastructure portfolios when returns were accretive and used opportunities to sell down when we thought value had shifted. This quarter, we completed the first CLO of its kind in our energy infrastructure business. After quarter end, we completed the largest CRE CLO since 2008. We come to work every day and choose where to best invest our capital and how to best finance ourselves and aren't forced to allocate our equity into any one business, regardless of market environment. We believe our results have proven the effectiveness of this strategy. We are not done as we look for additional business lines which will allow us to continue this flexible approach to capital deployment. The largest of our property assets is our 99% leased, 15,000-unit Florida Low-Income Housing Tax credit, or LIHTC, multi-family portfolio.
This portfolio is centered around Orlando and Tampa, two of the fastest-growing markets in the country the last five years. We were drawn to this investment for its very bond-like characteristics. Owners are allowed to raise rents based on increases in the median income level of the MSA, but rents never go down, even if income falls. Although we conservatively underwrote very modest income growth at the time of purchase, pro forma for this year's increase, we've been able to increase rents by over 20% since acquisition while leaving average rents at approximately 60% of current market rate rents. At the same time, cap rates have fallen dramatically from 6% at acquisition to recent sales in the low 4% cap rate area, and we believe there's upside from there.
In 2018, the state of Florida reduced property taxes by 50% on LIHTC assets as an incentive for owners to forego their contractual right to roll these units to market rate over a 30-year schedule and keep this critical source of affordable housing available to families in Florida. Last Friday, the state of Florida passed the bill HB 7061 that removes the other 50% of taxes, leaving these assets tax-free as long as they remain in the affordable program. If signed into law by the governor, this bill will further incentivize behavior that supports the state's desire to have more affordable housing available for its residents. Although we are still evaluating our options, this bill will make owners like us rethink what was always the best economic strategy, to roll affordable units into market-rate units over time, thus reducing affordable supply.
We believe this portfolio is worth in excess of $2 billion today, and after accretive refinancings, our remaining equity now returns a 30% cash return per year. At our valuations, we believe we could now generate over $1 billion in GAAP gains and approximately $900 million in distributable earnings gains in this portfolio. As we told you last quarter, we continue to evaluate selling a minority share in this portfolio, which would give investors more comfort around our valuation metrics and provide us with incremental capital we believe we can deploy accretively today. In addition to the gains from this investment, at our internal marks, we believe we have over $200 million of incremental gains from the remainder of our owned real estate portfolio.
80% of this incremental gain is split fairly evenly between our Cabela's/Bass Pro Shops long-term net lease assets, our medical office portfolio, and the Orlando industrial asset we foreclosed on back in 2019. Rina told you we reversed an $8 million impairment on the Montgomery Industrial asset that we took over at the same time as the Orlando asset, and we sold it in the quarter for an $18 million GAAP and $8 million distributable earnings gain. When we choose to ultimately sell the remaining Orlando asset, now fully leased to Amazon, we believe we will report a gain of approximately $60 million. A great outcome for shareholders and statement on our platform's ability to reposition difficult assets. Moving to our core CRE lending business, we continued our momentum from 2020 with a very strong CRE originations quarter of $2.2 billion, with an above average optimal IRR of over 13%.
77% of those loans were to repeat borrowers, a theme that we believe helped drive the strong credit performance of our portfolio through COVID. Our borrowers, who have contributed $582 million of fresh equity to support their projects since COVID began, and committed more than $100 million more, put great value in the flexibility, consistency, liquidity in any cycle, and ability to close on large, complex deals quickly. We have a very robust pipeline for the second quarter and continue to focus our originations on only the most stable assets with durable future cash flows. To that end, we have reshaped the characteristics of our loan book in the last 12 months. Year-over-year, we have reduced both future funding and construction exposure by approximately half.
By property type as a percentage of our loan portfolio, we have increased our exposure to multifamily by 72% and doubled our exposure to industrial assets while decreasing our exposure to office by 18% and to hotels by 14%. Multifamily loans are seeing the most lender competition today, and as spreads continue to fall, leverage continues to rise, and we hit a floor on our financing levels, we will pivot as we always have to sectors or other lines of investing we believe have the best risk-reward going forward. With optimism over the continued strength of the COVID recovery, credit spreads for many target assets have normalized to pre-COVID levels, and we are once again borrowing on our target asset classes at or inside where we were pre-crisis.
Our ability to source best-in-class leverage leaves us with similar ROEs to pre-COVID levels and at slightly lower LTVs, as demonstrated by our portfolio LTV, which decreased again this quarter to 60%. The scale of our platform has allowed our manager to build a large team internationally with a focus on Europe and Australia. We have seen tremendous opportunities in these less competitive markets, which have been slower to come out of COVID. Our international portfolio increased 35% year-over-year and now accounts for over one quarter of our loan book for the first time. We have large actionable pipeline there today and are excited about the existing opportunities. We are very proud that for seven straight years, we have won the Nareit Gold Star in our industry for excellence in investor communications and reporting.
Given we were unable to do our biannual investor day in person due to COVID restrictions, in April, we launched a first-of-its-kind virtual investor series, which is posted on the investor relations section of our website, www.starwoodpropertytrust.com. We created nearly three hours of content which provides detailed information on our company in each of our investment businesses, and we hope both new and existing shareholders will find it useful. Over the course of the three-hour presentation, we discussed our differentiated cradle-to-grave investment and credit process, and we believe that this process with multiple investment committees is paramount to our exemplary financial and credit performance since inception. We hope the webinar will help you understand how our credit process is different and why we had confidence in our portfolio that it would outperform as markets normalized.
We told you during COVID that we felt very good about the credits in our book. Sponsors have provided tremendous support to their assets, the macro environment has improved, and our outlook has improved daily. Following our day-long quarterly asset review last week, the management team came away thinking that with what we know today, we could exit this cycle with little to no losses on any loans in our portfolio as a result of COVID. Of course, the path of recovery could change, but that is a statement no transitional lender thought they would be able to make a year ago and reinforces our commitment to our differentiated credit process, as I just discussed. I spoke on our last earnings call about the transformational energy infrastructure CLO we closed in the quarter, and I want to talk today about the highly accretive CRE CLO we priced in April.
Our second CRE CLO was the largest post-Great Financial Crisis CLO at $1.275 billion. In a tepid market where spreads were widening and some deals barely had enough bond orders to price, we had 40 different accounts put in orders, allowing us to be multiple times oversubscribed and tighten pricing twice. We picked up 6% in advance rate versus existing financing facilities, and our LIBOR plus 150 day one bond coupon was inside our existing financing facilities, allowing us to get term non-recourse financing with no credit marks at a return on our equity of more than 4% more than we were earning on financing lines. Pro forma for the CRE CLO, we continued to maintain a peer group low 41% of our CRE loan book on bank warehouse lines.
With only 54% of our balance sheet in CRE lending today, CRE loans on warehouse lines subject to credit marks account for just over 20% of our asset base today. In our REIT segment, we're thrilled to announce that Fitch upgraded our special servicer, LNR, which is named special servicer on over $80 billion of CMBS assets, to the highest rating possible, CSS 1. This makes LNR the only special servicer in the world with this highest rating. Fitch cited our technology and the scale of our business, which allowed us to reallocate resources to adeptly deal with over 1,000 new servicing requests in a very short time. On behalf of the management team, I'd like to thank our servicing team for their superhuman performance that earned this spectacular achievement that will undoubtedly lead to more agent business going forward.
SMC or Starwood Mortgage Capital, our conduit originations business, was the largest non-bank originator of CMBS last year, and it's kept that momentum this year. Rina mentioned our Q1 transaction and subsequent to quarter end, we were the largest contributor to a very successful transaction that priced last week, and our pipeline continues to grow. Our team is best in class, and while we love the quantum of their contribution, more important to us has been their ability to remain consistently profitable quarter after quarter, regardless of market cycle over the last eight years. Because of this consistency, we believe it is a business that investors should value at a very high multiple. Before I turn to Barry, I want to say we are very proud of what we have accomplished together over this difficult period.
We built this company to outperform in distress and patiently waited for the markets to give us the opportunity to prove that we would. We are proud of our relative outperformance and believe we have a lot of room to run. Our company is firing on all cylinders, and the outlook has never been brighter. With that, I will turn the call to Barry.
Thanks, Jeffrey and Rina and Zachary, and welcome everyone to this quarter's earnings call. We give you exhaustive detail. We want you to understand our business. That's why we did the webinar. This is a company where the more you look at us, I think the more you'll like and understand how we manage capital and how we've navigated this crisis. I want to say that it's such an interesting period. I mean, real estate isn't Wayfair and isn't Peloton. We hit with a bazooka. Worldwide, real estate hit a wall. To come out of the COVID crisis definitely stronger than we went in, with a better balance sheet, what we think will be no losses from the COVID crisis, really speaks to the credit quality and our underwriting process and the equity-first attitude we have when we make a loan.
Like would we like to own this asset at this price? We are working with borrowers to restructure their loans because they can come to us and they don't have to go to a servicer who is detached from the real estate and doesn't understand why they need more capital for this or that. I think the model has proven to be incredibly strong. We didn't come out limping from this crisis. We came out galloping from the crisis. We put out almost $6 billion of capital. Many of our mortgage peers don't have other lines of business, had to shore up their balance sheets. Some had to do rescue capital. We were never in that position, and we did think multiple times about cutting the dividend. Obviously, we didn't know what the world would have for us.
We made the decision to hold the dividend, and I thank the board for that. As Jeffrey pointed out, with more than $1 billion of unrealized gains in our property book, we're pretty confident we can make the dividend whenever we want for quite some time. I don't think there's a company that has anything like that. The other thing that you speak to is the 60% LTV. It's no longer our LTV. This is actually a mark-to-market LTV and checked by CECL regs. That's why we're here with no losses, because those really were 60% LTVs. To demonstrate that, the borrowers put in hundreds of millions of dollars to shore up their loans and save their assets from the period of disruption of demand.
If I want to step back real fast and talk about the property markets, there are five major asset groups in real estate. Industrial and multis, which we've actually gained increasing exposure to on our loan book, but have always been pretty tough for us because the cap rates have fallen, because those are the two asset classes that investors are favoring. Given that you can't live in your computer, industrial obviously is a play on e-commerce. There's the big asset class that's yellow, which is office. We're all watching as the office markets recover. As Jamie Dimon says he's done forever with Zoom calls. I personally believe people go back to the office more than people think. It's a social event.
People who are not well off don't have communication devices in their houses and don't want to do Zoom calls in front of their children and potentially their grandparents. It really does affect the poor more than the wealthy who may be calling in from the Hamptons. I think if you look around the world, we have 16 offices all over the world, in Tokyo and Europe, London, all over the world, in the Middle East, they're back in the office. In the Middle East, they're 100% in the office. I'm not sure if you followed any headlines in the Middle East, you'll find anyone talking about work from home. The same thing is true in Tokyo, China. They're back in the office. Hong Kong, they're back in the office or headed to the office. I think there are markets that will suffer.
Clearly New York and San Francisco City, where we have no loan exposure, are going to see some significant compression in net rents. As rents fall, concessions go up. There's such enormous shadow vacancy in those markets, that's not where we're really exposed. Even in our equity books, we own no assets in those cities in the office sector. You had these two red light categories in real estate, hotels and retail. Hotels have gone from red to yellow. If you go down the curve to the budget end there, it's actually green. RevPAR's up. Those are mostly domestic travel hotels. With the coming something in the infrastructure plan, we think that'll get better and better. Group business and international travel take a while to come back.
If you move up into the upper middle-class stuff, it's going to be a while before they get anywhere near the revenues of 2019. Luxury is, if it's a resort, it's fantastic. People paid triple the rates to go to the Aman in Utah or our 1 Hotel here in South Beach, where I'm located, had a record first quarter and $1,600 a night, and we probably thought we'd get $800 a night. People have a lot of money. The nation is rich. That has a $1.3 or $1.4 trillion of excess savings, and everything they own has gone up, their house, everything. The nation's balance sheet is up, last I looked, like $15 trillion. People are well-to-do and as a whole. That actually is across the whole socioeconomic spectrum. That's not just the rich.
They may be getting richer as their equity books go up, but people's pension plans are rising, and as a percentage, obviously, the lower income classes have been helped unbelievably by the stimulus packages. I think the outlook for our lending, both here and in Europe, is great. We are very active, looking at a lot of large deals that we uniquely can do, and all of our business lines are operating at full speed. It is hard to buy equity real estate today with the kinds of cash returns we were used to. Jeffrey F. DiModica comes in my office every day asking for more equity assets. It's hard to generate the cash and cash returns we have.
For those of you who have been with us for, I think, the seven years we've owned our affordable housing portfolio, I said we were buying assets that I personally never wanted to sell. I think in 11 years, I don't think I've ever sold a share of stock in this company. I was pretty happy owning those forever. We are looking at monetizing some of the gains because we can redeploy the capital, and we think it'll be exciting for the company. Now with the pending passage of this legislation in Florida on real estate taxes, we can look to complete that transaction shortly. We wanted to wait for that to be enacted and get that reflected in the value of our sale. The other thing I want to point out is that we're responsible.
ESG is a big deal to us, and that comes in everything we do. We could have increased rents in the affordable housing portfolio 5%. I think Rina mentioned that. We chose to defer and not to do anything, even though we could have. We did the long-term right thing by not making matters worse for those in need in the affordable housing space, even if they had a job. Now we'll be playing catch up and gently increase rents and move them to market. I think it's nice to know that companies are doing their part to help America when it needed help. I want to say one more thing. We do have a fortress balance sheet. It's the best in the business. I used to envy Jamie Dimon at JPMorgan.
He'd say, "We have a fortress enterprise." Now I think Starwood has a fortress balance sheet. These two CLOs we completed recently, particularly the second one in the energy group, means it's a fundamental game changer for that business. We had an issue, as we always do, because we're not interested in quarterly numbers as we are the long-term duration and feasibility of our business. We had a mismatch. We had debt that was going to mature inside of the maturity of the loans, and it kind of made us nervous. You don't see a problem until there's a problem. If you have 10-year assets and five-year debt, you have to roll that debt in year five, and that inherently creates a problem. We call it the savings and loan crisis waiting to happen, financing short against long-term liabilities.
With the CLO, we've cleared that up, and now you're match funded. You don't see a penny of earnings from that, but that's fundamentally a different risk profile for our shareholders. That's the confidence we have in the durability of our dividend and hopefully, over time, perhaps being able to increase it. We are really pleased with the efforts of the team. There's 350-odd people rowing in the same direction at Starwood Property Trust these days, and we have a terrific board who's engaged and shows up and asks tough questions and challenges us, and we just want to say thank you very much for everyone for the recovery.
Our stock hit an all-time high about three weeks ago. It deserves that all-time high because getting a (7.6%) dividend in the world with a 10-year is 1.68% from this collection of businesses and these assets and 60% LTV loans is truly astonishing. Maybe someday we'll actually get that investment-grade rating we covet. Then this will become a virtuous cycle. We will be the largest by far. We're almost a $20 billion company today, $18.8 billion. This enterprise will be better bigger. We are accelerating our efforts to find more loan opportunities around the world, particularly in Europe, where we're staffing up. I think we have seven or eight people there. We're also looking in Australia. We'll do anything that we think is attractive long-term risk reward for the shareholders. Thanks. We'll take questions.
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Stephen Laws with Raymond James. Please go ahead.
Hi. Good morning. Congratulations on a number of accomplishments in the first quarter. I guess to start, Jeff, I think you touched on the opportunity to reallocate capital as you target the most attractive investments. As you look out six, nine months, the balance of the year, what business lines do you think are going to see the net increase in capital allocation on a mix basis? What areas seem less attractive right now where you think things may get allocated away?
Thanks, Stephen. Appreciate it. Last year, we probably said non-QM looked really interesting, and we thought the energy infrastructure business looked really interesting. I would say we agree on both of those still. We were able to get out of the gates during COVID and into the early part of this year ahead of most people in the transitional lending space. We've been able to put on very accretive high volume of loans. We earned more at a 13+% IRR than we historically do on the CRE large transitional loan book. We did more than we expected. We're going to do more in the second quarter than we expected, and I think there is a moment in time here for us to continue to do really accretive stuff in our core lending business. I would say today we're equally excited about those three businesses.
CMBS is kind of a steady state business. We brought our book down from about $1.1 billion to just under $700 million. We're sort of comfortable with it there. If an opportunity arises at wider spreads, like we did last year in COVID, we will continue to add there. Barry made the point about the property book being very difficult to grow today, given where cap rates are in financing and the cash returns available to us. I think it'll be more of the core three businesses. The CRE lending business will take up the lion's share of capital in the near future.
And the other thing-
And-
Well, before he goes on, we are looking at other business lines, including acquiring other companies. We are quite active in that vein. It's remarkable how difficult it is to convince boards to give up the flag or to end the waste of effort, frankly, and where they have no hope. It's difficult, and we have multiple situations that we have tried to consolidate parts of our sector. I'm thinking we might get something done. We think it would be accretive to us, and frankly, one and one would be more than two. I think whatever reason, some board members like being board members more than they care about their shareholders.
Thanks. On the CRE lending side, can you talk about what you've seen on the competition front? Most of your peers there, a lot of them were on the sidelines, many until the last month or two. How has that impacted the opportunities there, and how much spread tightening has that caused, or are you seeing that competition play out in other ways?
Well-
Go ahead.
Before Jeffrey goes, the one thing that's interesting is that the CMBS market is now past the bank market, so that you can finance. I mean, spreads in the CMBS world are very tight. That has become a bigger competitor than Wells Fargo's balance sheet, for example. Maybe we ourselves Rich Highfield's business, the conduit business, has been absolutely a star and continues. We haven't talked about it in a while, but they turn their book 11 times a year, so they're a manufacturer of profits or loans. I think Did we win last year?
We were the largest non-bank contributor.
Largest non-bank contributor in the country. That's a nice, incredibly great business for us. They run a terrific company, or division, I should say. What were you going to say?
He had asked about where the competition's coming from. Realistically, probably only our largest competitor in our space is really a competitor on most things that we look at. Our competition tends to come more from the investment banks than the debt funds. When the investment banks are making money, as they have been for the last six or nine months, they tend to lean in on a lot of these larger, highly structured, complex deals. We're definitely seeing that now. I'd say the investment banks are our biggest competition. There are certainly some debt funds. That's why we've looked more internationally where we have probably a larger staff than anyone but one person. We're growing that book pretty dramatically. We think this year we'll continue to.
I could see that book going from 25% of our loan book up to a third of our loan book over the course of the next year or so. We think there are outsized opportunities there as they come out of the COVID a little bit slower, and there's just simply less competition. We'll see. The rest of our sector who recently has enough money to start investing again doesn't tend to be a large competitor for us on the large complex loans.
Thank you. Our next question comes from Charlie Arestia with JP Morgan. Please go ahead.
Hey, good morning, everybody. Thanks for taking the questions. Barry, I wanted to follow up on your views on the office sector. Thinking about it from a high level, kind of beyond current occupancy and rent collection trends. I think we'll have some more clarity as people in the U.S. go back to the office more and more over the next few months. It seems to me that the current leases are going to play out, and the kind of tenants that you guys lend against are probably going to continue to pay their rent regardless of physical occupancy.
When you think about those leases coming to an end, and I realize this is a moving target here and the leases are longer term, but do you think the tenants, when those leases come to an end, will take a harder look at their real estate footprint, and if there's potentially a kind of more fundamental shift that could occur here over time? I guess ultimately, is this more of an owner problem than a lender problem?
No, certainly less of a lender problem than an owner problem, especially with 60% LTVs in your book. I think it is zip code specific or city specific. I think the states of Texas, Tennessee, Florida that have no taxes. Washington has no capital gains tax. They're incrementally benefiting, and there's less pressure on the cost structures. In Miami, we actually were out with the mayor of Miami last night, Jeffrey and I, and they've reduced the millage rate in town. Taxes are going down. Real estate taxes are going down. No income tax, real estate taxes going down, budget's going up. Surplus is going up. It's sort of the opposite of the cycle you're seeing in the blue states, where services income tax is going up, cost of labor is going up, union benefits are going up, real estate taxes, because buildings don't vote, are going up.
At the same time, rents are going down, vacancies are rising, companies are relocating to better, cheaper places to live, and it is seriously an issue. I think in some places like Miami and probably all of South Florida, Tampa, Orlando included, demand is up, not down. You're exceeding your underwriting on rents if you happen to be a developer and We built a building here and rents are 25% higher than we underwrote as we leased the building fully last. Starwood Property Trust lease down here is now 25% under market. I think it's about basic real estate, right? There's enormous issues now in these dark blue cities. The worst part is the legislatures of these states actually want property values to fall, because it's more affordable for their people, and that's a direct quote from a New York legislator in Albany.
That's a dangerous game to play, and that is very difficult real estate environment. One of my friends who you would know, he's a multi-billionaire, owns tons of apartments in New York City, says, "I'm just a janitor. I can't increase my rents. I can't collect the rents. I can't renovate because they won't give me a return on the capital I put in my buildings, and I'm just a janitor." You can see the future if it doesn't change. You go to Mumbai, go look at these gorgeous British buildings that were built when U.K. occupied India. Go look at the disrepair they're in, where landlords had no incentive to fix the buildings up and they're falling apart and falling down, and they were once beautiful buildings. You need a tsunami change of attitude in these dark blue states. It's a travesty.
They have so much going for them. There's so much culture, museums, art, sports teams, and wealth. The attitude is not conducive for excess gains in real estate, that's for sure. Don't forget, you need rents to go up, right? You need rents to go up. It's not holding your own and expenses going up is going to mean your net profits are going down. On the margin, these big cities are in trouble, because I think that JPMorgan does take 80% space, but they have 85-100. On the other hand, by the way, Starwood made an investment in the WeWork PIPE. This kind of reminds me of you always make money on being the third owner of real estate.
Well, somebody's going to make money in short-term co-working because if you're a small tenant, why would you ever lease a space for 10 years? Our bet is that people come back. It's the more flexible approach, and that becomes a real business in the U.S. as it has already become in the U.K. and other places. That's not an issue for us as a lender. We just want the building to be full. Something like 53% of WeWork's tenants are actually Salesforce, Amazon, Google. They're credit tenants where they are using them as a service, which was the original vision of the company. I think that's fine for office.
I think we're going to see a different, I'm betting, I'm thinking we're going to see a different model for some of the small businesses, which is the majority of office leasing 10,000 square foot tenants, changing the way they think about office. Especially since you don't even know, I know we were in this situation ourselves. We have a group of people in Connecticut that want to work in New York, we just don't know how many people are going to show up, and they want space. Are 20 going to show up or 50? We don't know because I don't think they like the commute, or maybe they want to come for two days and work from home for three days. I'm like, let's get a shared office space.
We'll see what it is, and if the people don't show up, we can shrink it or grow it. I think you're going to see that over and over again across the country as people try to figure out where the line is between asking people to come back to the office and then being sympathetic or empathetic to the, what do they call it, the YOLO generation? The kids who want to work from Montauk on Fridays. We'll see how this plays out. I'm not in that camp. The real estate guys in general, all of us, went back to the office. Here in Miami, where I sit with Jeffrey and Rina and Adam and Sean Murdock, who co-runs our energy group, everyone's here. We're 100% in the office. Nobody's complaining.
Appreciate all the color. Thanks, Barry.
Next question, Jade Rahmani with KBW. Please go ahead.
Yeah, sure. Thanks very much for taking the questions. Sorry, just have another call as well. Just wanted to ask you if you think that hospitality is a winner post-COVID as stay times potentially increase, and is that something where you think there could be an opportunity in lending since it seems that a lot of the lenders are shy on that space still?
I think you have to be super cautious. The pace of the recovery is probably the markets are ahead of themselves on hotel stocks, in my opinion, particularly the REITs. You're going to change. If you are working from home or you're working from smaller offices or offices closer to your house, you're probably going to take more corporate team-building meetings. You're probably going to have a different kind of asset. There may be more meetings because people have to get to know each other in a company, and they're not getting to know each other in an office building. You might see that. It's just too early to tell how that changes. I think the experiential high-end take 100 people to, what do they call those things? The cowboys on (horseback) when they go camping, whatever they call that. Rodeos.
What do you call that when they go. Whatever. There'll be people who do that. They'll take them out, and they'll do team-building exercises. I think the tech companies, in particular, which are the most likely to accept working from home because they're so competitive with each other, and that's how they compete. You can work from Mars. We don't care. Just send in your work. They will do team-building exercises, and they will go to Vegas, and they will probably go to Montana for some ranch. That's what I wanted to talk about. Like when you go dude ranch. There we go.
Dude ranch.
Is that acceptable today, or is it dudette ranch?
Both.
Dude and dudette ranch. I think it's going to change. I think what we're most worried about are the Marriott Marquis, the 2,000-room hotels in Manhattan that really needed group. The Westin in Atlanta, it's a 92% group building. I used to manage it, so I know what it is. Those businesses, that's going to be a while. There's going to be tremendous pressure on rates. Airbnb is a force. You have to now think about how you're differentiating yourself. Having said that, this summer's going to be a free-for-all. You've seen the stats. 73% of Americans are planning a trip, and the highest in history was 37%. America's going to party this summer like it's 1929?
1999.
1999. It better not be 1929. I think it's going to be. If you go anywhere, you talk to the ski resorts like Aspen, everything is full. People are booking. Booking Holdings did their earnings this morning, and they said you can cancel at any time. There's a lot of people booking stuff, so they may wind up canceling. The numbers will look, if you have the right assets, I don't think a lot of people are headed to the New York Marriott Marquis. Virginia Beach, the Cancun Fiesta, the numbers will be astronomical. That's going to be a bubble, right? That's going to pass. We're going to go back to work after Labor Day, and we'll have to see across the whole economy what's sustainable. Like, how many people will go back to physical shopping? It's an outing.
We were talking about it yesterday. It's an event. The grocery stores had their best years in the history of the world. Not only was that an outing, but it was the only place open. To get out of your house, you did something you don't really want to do. You just went shopping, at least it was something to do. We look at these things even on the equity side, and we kind of scratch our heads and wonder what the trajectory will be, or especially as the DoorDashes and the Amazons do last-mile delivery and try to now disintermediate grocery-anchored retail. It's going to be wild to watch the real estate industry as these new technologies and new ways of living change.
Our next question comes from Douglas Harter with Credit Suisse. Please go ahead.
Thanks. Barry, a little bit ago, you mentioned possibly looking at some other business lines. Is there any more detail you could give on that? Kind of what you think, what types of things you're looking at that could be complementary to STWD's existing?
Well, I'll say that our diversification in the energy business, partial success. It's getting better and better as we get rid of the old book that we bought and originate new loans, which are at or above our ROEs that we intended to execute at. I think it's better than 13, is the return on our remaining equity stubs. The original book was, like, six. This thing has been a problem. It's probably the one part of our company that we need to grow our book. We're working on that. Now that we feel comfortable that we can do the CLO financing, we can more aggressively grow the book. We were limited at first because we had a two-year facility from the bank, which was like, we didn't want to make five-year loans with two-year debt.
We sort of shut it down until we could improve our debt facilities. Now with the CLO, it's a game-changer for that business. We've done how many securitizations in non-QM?
We're working on-
We just did our 10th.
We just did our 10th. You'll see us do a lot of these, and we need paper, right? There have to be projects to finance. That business' ROE will continue to increase. Every loan that burns off or we sell and every new deal raises the ROE and the contribution to the company's earnings. There are lots of businesses that might actually fit in the TRS that are not balance sheet businesses but increase our ROE. I'd rather not talk about them because many of our competitors are on the call with us. We'll be judicious and smart. We obviously have a good currency that we can use today. Plenty of cash and access to capital. We're just trying to not overpay and try to find businesses that fit really well with ours. We think we're a finance company.
We're classified as a real estate mortgage trust, but we'd like to be considered more of a finance company. We have considerable room in our TRS for more taxable bad income. That, again, usually means it's a much higher ROE business, fee-based. We have several candidates we'd love to buy, but so far, no luck.
I would add that we are now in businesses that our parents or capital group is in and has expertise in, and you probably won't see us go far afield from that. There are certainly things within our areas of expertise that we could add on.
Great. Appreciate that.
Next question, Timothy Hayes with BTIG. Please go ahead.
Hey, good morning, guys. Thanks for taking my question. Just to follow up, I guess, to that is, how big do you think the investment portfolio can get without M&A based on your current capital base right now?
Well, we have one of our competitors that's $4.5 billion or so market cap against our $7+ billion market cap and has a larger loan book than us in CRE lending. I think we could certainly increase the scale of our CRE lending business. And I think all of our business could be larger in scale today. Certainly, if cap rates come out, we'd love to add some property assets to get that percentage back up higher. We love the durability of those cash flows, so we'll watch that. But I think all of our businesses can scale a decent bit higher. But there is a ceiling without adding businesses at which it would be difficult to keep going up.
The non-QM business and the large lending business are the two. There's a gap in our lending. The niche is small deals. What was the average size of our deal in the large loan lending book?
184.
184?
Yeah, at the quarter.
There's a big hole in the middle, and we would have to reorganize and start a new business, sort of a middle-market lending where we would hold a $50 million loan instead of selling it. That might open us to add several billion dollars of balance sheet assets. I would call that a core business, just a nuanced niche between what we do, the big deals. We have a problem. You finance a $100 million multi, and by the time you're done financing, you put out $12 million. Because that's what the mezz is after when you're done, or what we keep, $20 million. We have to do giant deals with the book.
That is a business we just have to organize ourselves to do middle market loans and balance sheet them, which would be one of the things we looked at acquiring, somebody who does that more often than we do that. I think there are other businesses, again, we won't go into, but that would fit nicely in our tent. It's hard. We pay a dividend that's what, 2.5x the average equity REIT. We can't buy industrial. We can't compete. The cap rates are 3.5%.
We can't support the dividend doing that. Triple net, same thing. There are businesses that we're blocked out of based on the cost of the capital, really the cost of our dividend. We need to support that dividend and cover our operating costs. Of course, one of the other reasons big is better is our overhead shrinks as a percentage of our assets and makes the whole business high ROE. We're $18.8 billion. We have a $10 billion, $10.5 billion, $11 billion loan book?
Yeah. If you included our A-note sales-
14
about 14.5.
14.5 . The other guys' more like 18.5 In their loan book. We have all these other businesses, too. We can clearly stretch our loan book. Jeffrey mentioned we did $2+ billion last quarter. He said we'd do $2+ billion this quarter. I had dinner with Jeff. I mentioned the mayor of Miami. There was one of our borrowers at dinner, too, and he's got four other deals for us. That's our niche. We want to be repeat customers with our borrowers. We're their friends. We move and shake with them. We're flexible. We'll write the loan the way they need it, and the senior is all taken care of. We're the guy making the real estate bet in the middle.
Not having a single loss in COVID, and I think we have one loss in our book or two losses in 12 years. Holy mackerel. That's a couple of cycles, right? It's not so bad. Anyway, next question.
No, it's a lot of good color. I'll leave it there. Thanks, Barry.
Our final question comes from Donald Fandetti with Wells Fargo. Please go ahead.
Yes. You'd mentioned that European lending could go up to maybe a third from 25% of that loan portfolio, competition lower. I guess, are there any sort of other risks in Europe? For example, do you view financing risk as a little bit higher there? I would think that maybe side by side, you'd rather put a dollar out in the U.S. versus Europe from a risk perspective, but maybe I'm just wrong on that. Just want to get your thoughts.
I actually don't agree with that. It's harder to add supply to the European markets, fundamentally, many of those markets are better than ours. The German property markets, the German office markets, Hamburg, Munich, Frankfurt, Berlin. We don't have any loans there, we'd love to have a loan there. Problem is cap rates are 3%, they're not going to write a 7% debt for us. We'd be very constructive on London today. London versus New York and San Francisco, they're not trying to change the social system. London will get through Brexit, and it has always been one of the great cities of the world. It will be a major European capital and global capital for capital. There's a lot of Middle East money that may kind of cause it a home away from home, that's not going anywhere.
I want to make two completely irrelevant comments, but I figured I forgot to make them in my comments. One of the reasons I'm so positive on our balance sheet, and it does reflect what you said, our exposure to construction has dropped from 24%- 11%. Today we have a very little real estate construction exposure, and our future funding obligations for all of our loans are down almost 45%. The company is like a rock at the moment, and we'll try not to screw that up. We're poised to add loans in all of our business lines because of that. We did a really good job, I think, of managing through the crisis. The other thing is that our biggest problem right now is repayments. Who'd have thunked?
We ran multiple schedules every quarter through the crisis, extending the maturities of these deals and assuming lenders couldn't pay us off. Every day I walk in and somebody mentions to me, somebody paid us off. That's another source of funds. Sadly, we don't really want those repayments, but they're not in our control, and we just got to redeploy the capital. Loan repayments are up dramatically.
I would add, you talked about financing. There are vastly more financing counterparties for us today in Europe than there were five years ago in Europe when we started making loans there. That's really not an option when you go to Europe. We've been a significant and serial A-note seller throughout our life as a company. In Europe, there are great opportunities to sell A-notes. We know how to do that. We're good at that. We have bank financing lines now, more of them with more people in Europe than we had before.
I think as the banks continue to move in that direction, it makes us more comfortable in our ability to sell A notes there, makes us able to distinguish ourselves.
Thank you.
I will now turn the call over to Mr. Sternlicht for closing remarks.
I don't have anything to add. Thanks, everyone, for joining us, and look forward to talking to you in three months' time. Thank you so much.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.