Greetings and welcome to the Starwood Property Trust First Quarter 2025 Earnings Conference Call. It is now my pleasure to introduce your host, Zach Tanenbaum, Director of Investor Relations. Thank you, sir. You may begin.

Thank you, operator. Good morning and welcome to Starwood Property Trust Earnings Call. This morning we filed our 10-Q and issued a press release for the presentation of our results, which are both available on our website and have been filed with the SEC. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are forward-looking statements, which do not guarantee future events or performance. Please refer to our 10-Q and press release for cautionary factors related to these statements. Additionally, certain non-GAAP financial measures will be discussed on this call. For reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP, please refer to our press release filed this morning. Joining me on the call today are Barry Sternlicht, the company's Chairman and Chief Executive Officer, Jeff DiModica, the company's President, and Rina Paniry, the company's Chief Financial Officer. With that, I am now going to turn the call over to Rina.

Thank you, Zach, and good morning, everyone. This quarter, we reported distributable earnings, or DE, of $156 million, or $0.45 per share. GAAP net income was $112 million, or $0.33 per share. Across businesses, we committed $2.3 billion towards new investments, our highest quarter in nearly three years, with infrastructure lending committing its highest level of capital in a single quarter since we acquired the business from GE in 2018. Our overall strong investing pace continued after quarter end, with $1.3 billion already closed. I will begin my segment discussion this morning with commercial and residential lending, which contributed DE of $179 million to the quarter, or $0.51 per share. In commercial lending, we grew our loan book by $859 million, which will help drive our long-term earnings potential. We originated $1.4 billion of loans, of which $886 million was funded, and funded another $250 million of preexisting loan commitments. Many of our originations were back-ended to the last half of the quarter, so the full earnings potential will not be realized until Q2. Repayments totaled $363 million, which is higher than we expected, leaving the book at $14.5 billion at quarter end. The growth in our portfolio also led to a slight decrease in our weighted average risk rating, from 3.0 last quarter to 2.9. We began executing on the resolution plan that we discussed on our last call and have resolved $230 million across three assets so far this year at pricing at or above our GAAP basis. The first is a $38 million nonaccrual loan secured by a hospitality asset in California. During the quarter, we received $39 million in full repayment of the loan, resulting in a $1 million GAAP and DE gain. The second is a $55 million apartment building in Texas that we foreclosed on in 2024. Subsequent to quarter end, we sold the asset at our undepreciated GAAP basis, which is the same as our DE basis for this asset because we never took any GAAP reserves. The third is a $137 million office building in Texas that we foreclosed on in 2022. Subsequent to quarter end, we sold this asset for a $5 million premium to our GAAP basis, reflecting the adequacy of the GAAP reserve we recorded in 2023. The corresponding DE loss of $44 million will be recognized in the second quarter. To clarify, we do not consider an asset to be resolved until it has legally exited our balance sheet, so the resolutions I just mentioned exclude this quarter's foreclosure of a $45 million previously five-rated nonaccrual loan on a multi-family property in Georgia. We obtained a third-party appraisal for the asset, which indicated a value above or at our basis, so no reserve was recorded. Our CECL reserve decreased by $26 million in the quarter to a balance of $456 million, reflecting the macroeconomic forecast. Together with our previously taken REO impairments of $198 million, these reserves represent 4.2% of our lending and REO portfolios and translate to $1.93 per share of book value, which is already reflected in today's undepreciated book value of $19.76. Next, I will turn to residential lending, where our on-balance sheet loan portfolio ended the quarter at $2.4 billion. The loans in this portfolio continue to repay at par with $55 million of repayments this quarter. Our retained RMBS portfolio ended the quarter relatively flat at $422 million, with an $8 million positive mark-to-market offset by repayments. In our property segment, we recognized $16 million of DE or $0.05 per share in the quarter, driven by our Florida affordable multi-family portfolio. Subsequent to quarter end, HUD released the new maximum rent levels, which were set 8.4% higher than last year. Certain properties were in geographies where the rent increases were once again capped by HUD, which resulted in 6.7% of incremental rent growth being deferred to next year. This would be in addition to any increase determined by the HUD formula in 2026. As a reminder, the majority of these rent increases will be implemented in June, so the impact to earnings will not be fully reflected until the quarter. Turning to investing and servicing, this segment contributed DE of $50 million or $0.14 per share to the quarter. Our conduit, Starwood Mortgage Capital, completed four securitizations, totaling $268 million at profit margins that were at or above historic levels. In our special servicer, we continue to be ranked the number one conduit special servicer, a ranking we have maintained over the last 2.5 years. Our active servicing portfolio ended the quarter at $9.6 billion, with $800 million of new transfers, which were again dominated by office properties. Our named servicing portfolio ended the quarter at $107 billion. In our CMBS portfolio, two large loan payoffs resulted in principal collections of $62 million. We also added new purchases of $12 million. Concluding my business segment discussion is our infrastructure lending segment, which contributed DE of $20 million or $0.06 per share to the quarter. As I mentioned earlier, we committed to a record $677 million of loans, of which $601 million was funded. Repayments totaled $436 million, bringing the portfolio to a record $2.8 billion at quarter end. As with the growth in our commercial loan book, growth in this portfolio will likewise help drive our overall long-term earnings potential. Subsequent to quarter end, we completed our fifth infrastructure CLO for $500 million with a record low cost of funds and a weighted average coupon of SOFR plus 173. This brings our term non-mark-to-market CLO financing to 58% of infrastructure debt and our non-mark-to-market financing for the entire company to 84%. And finally this morning, I will address our liquidity and capitalization. Subsequent to quarter end, we completed the $500 million issuance of our 5.5-year, 6.5% senior unsecured sustainability notes, which we swapped to a floating rate of SOFR plus 261. In addition, we repaid the remaining $250 million of our $500 million March 2025 high yield notes at maturity. Our corporate debt activity over the past two quarters increased our weighted average corporate debt maturity from 2.2 to 3.7 years and leaves us with no corporate debt maturities until July 2026 when $400 million matures. Our current liquidity stands at $1.5 billion, which does not include liquidity that could be generated from cash out refinancing, sales of assets in our property segment, direct leveraging of our $4.9 billion of unencumbered assets, issuing high yield backed by these unencumbered assets, or issuing term loan fees. We also continue to have significant credit capacity across our business lines with $9.5 billion of availability. Our adjusted debt to undepreciated equity ratio ended the quarter at 2.25x. With that, I'll turn the call over to Jeff.

Thanks, Rina. We informed you last quarter that we intended to raise incremental capital to increase our lending pace in what is one of the best origination environments we've seen in some time. As Rina said, we originated $2.3 billion in new investments in the first quarter and are on pace for a strong second quarter with more than $1 billion already closed in the first month. The opportunity set should be large. In CRE, record origination volume from 2021 and 2022 needs to be refinanced in the coming quarters. Real estate transaction volumes have picked up. The CMBS single-asset single-borrower market has pulled back given the steepening of the credit curve. Many lenders are capital constrained and banks earn higher ROEs lending to us than competing with us on their loan origination. The year started strong and that strength continues today. I just got off a call with the co-head of U.S. debt for a major brokerage who told me they have 50% more debt and equity deals in the market today than the same period last year. These factors create an opportunity for well-capitalized lenders with consistent access to capital markets to prosper. As we have in the past, we have again proven our unique ability to raise both debt and equity capital accretively in this cycle. In March, we were 4.5x oversubscribed on the issuance of $500 million in sustainability bonds that Rina mentioned, which we swapped to SOFR plus 261, our six basis points off the record tight spread that we achieved just four months earlier in December 2024. In the last year, we issued a repriced $4 billion in debt and equity instruments. $2.6 billion of that was completed in just the three months from December to March, where there was very little capital markets activity. These activities leave us today with $1.5 billion of capital to invest after closing the pipeline I just mentioned. We also enjoyed historically low leverage at 2.25x and have significant unencumbered assets, which can be levered to continue our accelerated investing pace as we move into the second half of 2025. We expect our balance sheet to grow materially this year, allowing us to maintain a dividend that we have paid for 45 straight quarters. We uniquely have approximately $4.50 per share in harvestable gains on our own real estate portfolio. We are the only 2.0 commercial mortgage REIT that has never cut its dividend, and we believe our diversified low-leverage business model provides us with the unique ability to ride out market disruptions. We're seeing green shoots of liquidity and optimism return to our sector. The market's expectation of where the benchmark rate SOFR would be in 2026 and 2027 was 100 basis points higher at this time last year and is now back in the low threes for the near term. This is good for legacy positions as they will have an easier backdrop and more debt service coverage to enable our borrowers to refinance with these lower benchmark rates. Stocks have clawed back their losses, but the credit curve has steepened as insurance capital now has lower risk-based capital charges on higher-rated bond classes. Their move to higher-rated credit assets with lower risk-based capital charges has created more opportunity for us in subordinate positions of the capital structure where we have invested over $100 billion over the last 16 years. As I just said, banks get better capital treatment lending to us than direct lending, and we continue to see borrowing spreads to us decline, allowing us to maintain our returns with likely less competition. This, along with volatility in single-asset, single-borrower securitizations, has created a bigger opportunity for us in 2025, and we expect to continue our elevated investment pace in all of our business lines. In CRE lending, we originated $1.4 billion in the first quarter. We committed more equity in Q1 than we did in all of 2024. We've been leaning in on three investment themes this year and expect to continue to do so: data centers, Europe, and multifamily. When fully funded, 70% of the equity in our Q1 originations was in data centers with long-term leases to investment-grade tenants. Our second largest loan is on a broadly diversified multifamily asset in well-leased German markets with a 61% origination LTV. 30% of our lending book is now in markets outside the U.S., where we benefit from a large dedicated team and a long history of operating in these markets. Additionally, we have a large pipeline closed or in closing in Q2, the vast majority of which are on multifamily assets in the United States. At quarter end, our CRE loan portfolio is up $859 million, as Rina mentioned, to $14.5 billion, and we expect it will reach a record high by year-end, which should support our efforts in 2026. As we look to legacy credit, I will remind you that we have over $650 million in reserves for our CRE lending book reflected on our balance sheet today. Resolutions, which we expect to accelerate the next two years, should lead to lower reserves in the future and higher earnings as we recycle that capital. As Rina said, we have resolved $230 million of assets so far this year at values in line or better than our GAAP reserve levels and expect that trend to continue. In the quarter, our U.S. office exposure declined to just 9%. We lowered our CECL reserve for the first time in four years and with no new additions to our four or five rated categories in the quarter. We moved our only life science deal, a five-rated $73 million loan on a renovated but empty asset in Boston's Seaport District, to non-accrual in the quarter, and we'll update you on progress there in the coming quarters. Moving to energy infrastructure lending, you have all seen oil and gas prices move lower this quarter, but our earnings are not dependent on these commodity moves. Our loan book is split between assets that produce power and midstream assets that store and transmit the commodities, but it's not levered to the commodity price itself. We continue to enjoy excellent returns at some of the lowest lending LTVs in our portfolio in this business today. In the quarter, we deployed a record $677 million at above-trend returns, allowing our portfolio to increase again to nearly $3 billion. Although we have ample ability to finance the growth of this business on bank lines, we issued our fifth SIF energy infrastructure CLO in the quarter at the lowest cost of funds to date. I'll finish today with the property segment, where Rina mentioned we would receive 8.4% rent increases in Woodstar this year and will defer 6.7% to next year, ensuring continued property appreciation. We have spoken many times about the embedded value for SPT shareholders of the Woodstar portfolio. We have over $1.5 billion of harvestable DE gains on our 59-owned properties. Contractual rents have continued to increase since we purchased the portfolio between 2015 and 2018, and we expect this to continue, which will add significant value to our portfolio in the coming years. We have told you that there is also a significant upside as we are able to roll these properties to market rate from affordable once they reach the end of their affordability restrictions, which is typically 25 to 30 years after construction. We told you that these restrictions started to burn off last year, and in eight years, over a third of the rent restrictions will roll off, allowing us to either increase rents to market rent or stay in the affordable program and continue to benefit from abated real estate taxes. In short, you may be under the assumption that multifamily rents are flat or falling nationally, but this has not been the case in the affordable space, and the continued lack of supply and income growth should lead to even more upside for shareholders going forward. With that, I will turn the call to my friend Barry, who is right off the red-eye, so take it easy on him. Two hours of sleep.

Good morning, everyone. Thanks, Zach, Rina, and Jeff. I guess for us, let's just start with the economy. The economy is going to weaken. I just was talking to CEOs of a portion of 100 companies the past few days returning from the West Coast, and there will be issues on shelves, and there will be prices for consumers to absorb, and you kind of already were in a recession. You kind of saw it at the lower half of the country, and the top 10%, 15% of the country was carrying spending and consumption, and now we'll see how the wealth effect actually plays through them. Actually, the markets have recovered their pre-Liberation Day highs, but that doesn't really feel right, and things like travel are clearly off. I guess it was Expedia that reported, and then Airbnb, and we've seen the travel numbers. The airlines have talked about their stress as international travel in the United States dissipates, but it will go somewhere, so Canadians will go to Europe or they'll go to the Caribbean. They may not come here, but they're the number one tourist in the United States, and the Europeans will probably stay in Europe and frequent Greece and other locations rather than come to visit us. So, the economy will weaken, and that means eventually rates will lower, and for sure when he's out in May of 2026, there's no chance rates will be higher, because the selection will depend on somebody who accommodates a lower rate environment. That is all good for the property segment. And so I feel like we're through the worst of it, and it's going to get better from here, and transaction volumes, which kind of have slowed again given the blowout of spreads and uncertainty in the markets, and people worrying about additional, where their next deal is going to go. I expect that will re-accelerate. However, we've been in the market now open for business for the past year. We've probably never entered this period with a better balance sheet, a better team, and more opportunities in all of our sectors to achieve excess returns, and I think we're executing really well. So, for us, I think the story of the economy is a weakening. Obviously, now the forward curve is four cuts, and so even three would be fine, down to the threes. At the end of the day, real estate is a yield-mediated product and the largest asset class in the world. We will come back into favor, and we'll probably have more people on this phone call in the future. But it is our opportunity to continue to our north star, which is to achieve investment grade, and continue to do that. To do that, we have to grow all of our investment sleeves and add additional ones. We've looked at a resi originated this quarter. We've been on a $2 billion regional bank portfolio, but it priced inside of our hurdles. We've looked at other companies in our sector, including the public opportunities that might exist, and we're turning over lots of stones to find the, what do you find under a stone? A pearl? Is that a clam? It's a clam. So, looking for the pearls under the sea. It's interesting that we, for our board, we just did a presentation just a week or so ago, and we are the only 2.0 mortgage rate that is trading above its IPO price. Jeff said we're the only one who's never cut their dividend. We believe our dividend is solid. And we have a very unusual portfolio. We own, start with capital, over 110,000 apartments, including 43,000 affordable assets. And the portfolio of this company is the shining star of the whole bunch. When you have 15% rent increases in one of our geographies, that's the highest I've seen in anything, market rate, or any asset class in real estate, frankly. And we call it the gift that keeps on giving. When we bought those assets, my theory was I wanted to own stuff and start a property trust that we could hold forever and increase the duration of our portfolio, essentially, that would give us cash flow forever. And being affordable, they're always full. Being in growth markets that are dependent, and rent growth is dependent on income growth, we picked wisely and we vastly outperformed our expectations, being that the rents are so low, convert to market. You actually don't have to worry about people moving in and out as much, people stay. Our only job is to manage them well and meet customers' expectations and keep them full, which the team has done admirably. So, that is a real hidden source of value for the company as it stands today. And we want to increase our real estate book and look back at the kinds of real estate deals that provide the cash-on-cash yields that we think are accretive to our enterprise. And one other thing, of course, some of our peers are trading at fractions of their book values. And at some point, they can't raise capital, and there's an uncle saying, well, you should fold up shop. And obviously, it's the largest in our sector and largest in the world. We'd love to be the acquirer. And also, partnering with Starwood Capital Group, we can split these portfolios. If there's lots of bad assets, we're able to work on them and figure out how to split the assets, as we actually did when we bought LNR two years ago. There were some assets in there that did not fit STWD's work. You have to look at the book today and just be sort of astonished. We continue to hit our numbers while carrying nearly almost $2 billion in non-accrual assets, which is astonishing. That is bad news and really good news. At some point, we're going to be able to harvest that capital and put it back to work. Can't wait. Don't want to do stupid things. Have the ability to reinvest in those assets, reposition them and bring them back to market and try to get great returns on our incremental capital. But it is future earnings power. And even though we carry $650 million of reserves against it, we do think that that's a significant capital that we look forward to redeploying. And we watch those assets, and Jeff and the team watch the assets pretty much every day. Our liquidity is excellent. In our universe, I'd say we have what I think Jamie Dimon referred to as a fortress balance sheet. The extension of maturities, the rates at which we're capable of raising debt securities, not only in our real estate book, but our energy book, really position us well against our comp set and provide sustainable competitive advantage. At the end of the day, it's all about our team. And we have over 350 people and another 450 at SEG that are dedicated to finding opportunities for the company both here and abroad. And we have, whether it's the CMBS team or the special servicing team with what is it, $107 billion of named servicing, we are positioned to continue to outperform over long periods of time. So, I've got nothing else to add. I think our job now is just execution, execution, execution. Be patient. Grow in every one of our business lines that we can. Be more aggressive in utilizing our usual access to data to make better, faster decisions. We're doing a giant AI project over the whole company right now to help us be more efficient. And I look forward to implementation of that over the coming year. I was getting a tutorial on the flight home yesterday from a tech wizard that was astonishing. So, we have a lot to do there and most companies do. And I think it only bodes well for our productivity and our margins. So, excited for the next quarter. The road is not paved with gold. There are bumps. You're going to see things come up and down. I'm sure of it. And the outcome of the administration's policies is still unknown. But we couldn't probably be better positioned for that. And I look forward to the year and working going forward. And I will take any questions.

Our first question comes from Doug Harter with UBS.

So, it sounds like you've started to make some progress on resolving your non-performing loans. As you look at the remaining assets there, how should we think about the pace of resolution and whether you can be kind of as successful at exiting those with minimal losses?

Yes. Hey, Doug. Thanks for the question. There's a couple of apartment deals that we know we can likely sell at our basis, and we will do so this year. We have apartments at the Chatsworth building on the Upper West Side, and the scaffolding is coming down in May, and we expect to have significantly more progress there. We just sold the unit for $7.5 million this week in line with our underwriting, so that's good. We have an office building in Brooklyn that has just signed a second lease. It's now two-thirds full with long-term credit tenant leases. We have someone looking at the last third that could resolve easily this year. We have an asset in Dallas that is something that we have to work through. It's a combination of a mixed-use property with a hotel and multifamily. I think that's one we could likely work through this year. And we have a couple of downtown LA office buildings that could push into 2026 or beyond, but that's generally the flavor. You know, multis, if we get to this forward SOFR in the low threes, 3.25, you pick a number, and you have a 5.5 or 6 debt yield, you have a high likelihood of getting out of par. Most of the stuff that we wrote loans on against 3.5 and 4 caps is the very lowest, the tightest part of the market in 2021. They're performing at that high 5 debt yield on the low end, and that high 5 debt yield gets out in a low-threes SOFR. In a low-fours SOFR, then we'll have to hold it for a little while longer. But where the forward curve is now, I expect things to sort of stop coming in and start picking up progress on the others. We have staying power in a lot of these loans. We have eight years of wealth on a lot of the office loans. Go ahead Barry.

I want all of them returned, but they aren't being returned. They do come back because your attachment point on replacement costs is strong, and owning them would be beneficial with the significant decrease in supply expected in the multi-market. Rents will certainly improve next year, particularly in the latter half and extending into 2027. A noticeable effect of the administration's policies is that people are anxious about starting new projects, and there is uncertainty regarding costs, not only for materials like steel but also for labor availability and the potential impact of deportations of immigrants. Additionally, the supply chain is crucial; every component of a building is needed to complete it, not just most of them. Developers are discussing delaying projects, which is promising for existing assets and their performance. The asset classes are currently doing remarkably well, with multi-markets at 94-95% occupancy despite record supply. In the past, such levels might have slipped into the low 90s or high 80s. Rents are mostly stable or slightly increasing, with some cities seeing declines while others experience more significant increases. New supply weakens the market, while limited supply strengthens it. We need a shallow recession rather than a deep one that harms demand. Even the office markets are surprisingly strong if backed by good collateral. Regarding our portfolio, we have a building we repossessed in downtown Washington DC that is ready for conversion to residential use. I suggest we pause on any work for now to better assess the employment situation in DC.

But we're doing all the plumbing to be ready.

We're doing all the plumbing.

We're just not deciding one year forward whether we're putting the shovel in the ground on that date or not, but we'll be ready to go in a year.

No, we're going to be ready to go. We're just taking the moment we want to do that. So, it's relatively, we planned and designed the entire conversion. It's actually a very handsome property. It's just we want to make sure the rents are what we think they're going to be. So, with that and the next...

Yes. And part of that question, Doug, is the follow-up would probably be on the three large offices that are maturing this year. One is the Brooklyn office building where I told you we signed a second lease and got up to two-thirds lease. And we're talking now about a third credit tenant lease and that will work out. That's the March maturity. The June maturity is an asset in California that has a five debt yield. We have a basis in the low 200s of foot, we sold 15% of that complex by selling one building at $280 a foot, $66 above our basis. So, we feel okay. And we think there's good leasing prospects. We're working on updating the lobbies and doing some work there. So, we actually felt pretty good about that. And then the October maturity this year is our large loan in downtown DC, really trophy, a terrific building. It's 84% lease. It has eight years of waltz and it'll have a six-ish debt yield and likelihood to be able to go up from there. But our capital, given we have such liquidity and access to capital, we have the ability to ride these out and wait for the optimal time. And we will move on at the optimal time. So, when we have waltz, we have cash flow, it doesn't necessarily make sense to go today. We're going to wait, see what the market gives us. And we sort of know where our downside is, but we think we have upside on these two. And that's part of being a $110 billion CRE manager. Hopefully, like we have in the past, where I think we had going into this cycle, $100 plus million of gains on our REO. We like to work on assets and Barry likes to be involved. And that's why he knows all the details of a rental in DC and what we're going to do. And so, we're very involved and we'll work it out as best we can.

Our next question comes from Don Fandetti with Wells Fargo.

Can you talk a bit more about the opportunity you're seeing with residential credit? Clearly, you have a lot of capital, banks are selling. And I think you said you've been on a portfolio. Are you constrained in terms of not wanting to put on a lot of leverage there or is this a significant opportunity for growth?

Yes. The portfolio that we looked at was a $2 billion portfolio of commercial that was coming out of a middle-market bank, $10 million or so loans, the kind of thing that's perfect for us. With LNR as our servicer, we just have so much information. We can rip through a massive portfolio like that very quickly and come up with a value that's accretive to us. A couple of people, I think, thought it was worth a little bit more, but we went a few rounds on that. In resi credit, you've noticed we haven't restarted the resi machine. We took a write down of $230 million or $240 million in 2020 or so on our resi book. We owned lower coupons than market as the rate went up. And we've been a little bit reticent to go again, but our resi team has been looking at just about every opportunity, every platform. I could definitely see us buying an originator, building an origination business, around non-QM, which we've done in the past, and some agency and maybe some investor loan things like some of our peers do. I do think that there is tremendous liquidity available to us from a financing play on that. I think leveraged yields are attractive. There are decent opportunities also in secondaries there, but we are going to reemerge in resi. It's just a matter of when, and we are looking at every opportunity to figure out how we do that. To buy a resi originator with licenses that does $2 billion or $3 billion a year, you might pay $125 million to $150 million of premium. We're trying to decide if that's something we can build and create $125 million to $150 million of shareholder value by building it ourselves rather than going outside. But you will see us in the next year reemerge and start putting some credit trades on in resi. We do think there's a long-term opportunity and it's something that fits us really well. I'd love to see our dividend yields come down from 10% where I don't really understand it there. But if it did come down and our cost of capital changed, then that business becomes a lot more attractive. But where our dividend yield is today, our CRE lending and our energy infrastructure businesses feel like the best home for capital.

Got it. And then on corporate M&A, are you still thinking that sellers are reluctant, especially if we're looking at Fed cuts, or do you feel like you're starting to feel more optimistic that there could be a seller and some consolidation opportunities for you?

Given REITs are very hard to buy, you can't buy more than 9.9%. There's a lot of rules that they have to want to be bought. And corporate M&A in the REIT world is very difficult unless a seller wants to be a seller.

Yes, I mean, it's not where they're trading, it's what the board will do a deal at. And I think you'll see some action in the sector because they're sort of dead men walking. But it really depends on the board and the management team's cooperation. You need to get in there on some of these books. You can't do it easily from the outside. You need to get inside and really understand the complexity of the asset base. So, you can guess, but guessing in this business. And obviously, a lot of these smaller entities don't have our corporate debt. They have repo debt or they have other, you have to really understand the terms and conditions of that stuff. So, it's a little bit complicated from the outside looking in. Especially when they want prices that on the surface aren't really achievable. And obviously, we'd like these investments to be accretive to our shareholders. But I think, I'm optimistic that as we come out of this, it'll become more painful for some managements to basically do almost nothing. They can't do anything. They don't have a balance sheet. They can't raise capital accretively. And in some cases, the manager fees will overwhelm their ability to pay it. So, inevitably, there'll be stuff to do.

And we're a huge part of the REIT index, given we're more than twice as big as the next biggest competitor and almost as big as the rest of the universe. So, if we could reduce G&A and consolidate the entire business, we would certainly love to do that at the right prices. The hardest time to do M&A is when someone's trading at 20% or 30% book. If you're going to pay them some significant discounts, a book that might feel untenable to their board or their shareholders, the easiest M&A is probably at 70% or 80% a book, where you can pay somebody 90% to 100% a book, cut out G&A, make it make sense for both. So, it'll be difficult. Somebody's going to have to want to be consolidated.

Our next question comes from a line of Jade Rahmani with KBW.

I think earlier, Rina mentioned that the timing of loan closings weighed on interest income in the theory of spending business in the quarter. Are you expecting an increase in Q2 and going forward?

Yes, this is something that I'm always reticent to talk about, Jade, because it feels like it's been in every peer's transcript for the last five years. But we did close a tremendous amount right on March 31st, so you didn't see any interest income. So, I think it's the first time we've used that arrow in our quiver, but it was very true this quarter where we had a lot of closing plates. Our pipeline is really good. Rina always gets mad at me if I want to say what we're going to end up at, but I expect this run rate to be a run rate for a little bit. It's difficult out there. We've lost a number of deals in the last week or two that we hope to get, but we have as long of a pipeline as I've seen, both in Europe and in the US, and there's a lot of really interesting opportunities. So, hoping that we can maintain that and maintain the success in our energy infrastructure book as well. We want to grow. Growing is the way to ensure that getting this portfolio back up above our previous high, which I think we will do this year, is the best way to offset the drag of the non-accruals, as Barry said, until we can work out of them. So, we are in a growth mode, but it's not growth at any cost. We're reticent on the last five basis points on every deal, and we're trying to not chase anything to do it. So, grow smartly is the mantra.

You mentioned something interesting on subordinate debt. I was wondering if you plan to execute on that opportunity by originating whole loans and bifurcating them, doing more syndication, or will you just be looking to originate mass loans? How do you see executing on that?

It runs the gamut. Adam Bellman's in the room. He runs our LNR business and our CMBS business. I think there are opportunities in B pieces. We're going to do a few this year. When I said subordinate debt, I'm basically saying that what we create when we write a 65 or 70 LTV loan and we finance 45% or 50% of it is effectively equivalent to a BBB or a BB asset. And that's $100 billion of money that we've put out over the last 16 years. And with the credit curve insecurity deepening, we think we should be able to earn a little bit more on our loan book that mirrors the look-through rating of those. We can also obviously play in subordinate securities as well. And that's something that the team has been looking at. They've got cheap, but not super cheap. We don't like putting leverage on leverage. We haven't done that here in a long time. If they're unlevered yields on BBs are 10% or so, it doesn't quite hit the hurdle that we're hoping for and we're reticent to leverage. But on the right securities where we have the ability to underwrite every loan in every CMBS deal and have a real strong opinion, that book, Adam has probably returned over 20% for us in the 16 years that we've owned it. If that becomes an 11 or a 12, we will be a large buyer of secondary bond with our liquidity.

That's unfortunate when it gets up to those levels, you start losing interest on the sellers. We haven't reached the sweet point of that.

Yes. Thanks, Jade.

Our final question comes from the line of Rick Shane with JPMorgan.

Barry, when I parse through your comments, what I hear are a lot of cross currents that you're confronting. The consumer is slowing down, but you see rates going lower as a result. It's an attractive financing market. There is capital available in the market, but your competitors, many of them are on their heels. Really two questions here. One, does that put you guys on the front foot now in terms of being aggressive to pull capital? Do you want to be a little bit more conservative? Also, as you described them, the dead men walking for many of your competitors, but the availability of capital in the markets, is it creating new competitors or new types of competition for you guys?

Your competitors, as you point out, are shifting. I think we see the private credit guys much more. But I think we still have an advantage in our scale. We wrote a $500 million junior position. Not many people get that phone call. Because we know the property classes and we're active, people know we're going to perform. They know that it won't take us seven years. We can do it expeditiously. I think the amount of capital needed in the data center space is staggering. The credits are great and the debt yields to our positions are phenomenal. Spreads have come in, but if we can pick up the juniors in those positions, we actually probably don't know it, we're very active on the equity side of data centers. We've probably committed over $10 billion to the space and have 1.5 gigawatts of power under our control. We're among the top 10 largest players in the states and number one in Ireland. And we have about 160 people working in the data center space. So, we can underwrite this stuff quickly. We know the credits, we know the tenants, we know the issues and leases. We've written them all to Amazon, Oracle, Light Dance, et cetera. I think that's a space area we could add infinite capital to if we had it. And we do like the positions there. So, that's a big new giant to take the scale of the commitments from the majors. It's something like $250 billion to $300 billion leveraged. It's $900 billion, that's almost as big as the infrastructure bill. And that's this year. So, maybe 25% of it's offshore. There's a lot of capital that needs to go into the space. So, we've done some, we'd like to do a lot more. And I don't see it's a big enough area. And by the way, money is kind of contracting a little bit. People are a little nervous about private credit. So, I think it should be in corporates if we do have a recession. And I think uncertainty, as Mark Romans talked about, breeds delays. And you just wait for a clearer picture. And as you've seen M&A has hit, I think, the low is not seen in twenty years. I mean, nobody can do anything with anyone. But I think I'm kind of happy. I mean, for us, this is a good environment. And because we have conviction and we've been doing this for so long. Star Capital is enjoying its thirty-fourth year. So, we have the data to support our and help us make better decisions. So, I think it's good. I'm sort of, in a way, less worried. It's just the opportunities that can we find. Pricing we need. But the banks, as Jeff pointed out multiple times, they do so much better now lending to us than making the loans themselves. And tumult in the spread of the CMBS market will enable us to come in and shore up bids on deals. And the other thing we've learned as a borrower, which is becoming super important, when you go to the banks and they originate for you, we just did this the other day, by the way, they're going to syndicate the loan. It's not going to CMBS. And they syndicate it, in many cases, they'll syndicate it to probably offshore accounts. And then if there's a bump in the road, you're dealing with somebody in Korea you don't know or Europe. And we've been willing to take excess spread to know who our counterparty is going to be. And I think that a lot of borrowers are paying more and more attention to that. That they'll give up 25 basis points, 50 basis points, because you want to know if something ever happens, I can speak to Jeff or Dennis, our team, or Adam, whoever it is on our squad, and we'll work it out with you. And they'll create a win-win. So, I think people are, it's interesting. I think borrowers are smarter. They don't want the 5 basis points right now. They want to know where their loan is going. And that's a really important feature that's kind of emerged that I would say was not here five years ago. We weren't paying attention to it. I think what happened to all of us is, obviously, the world changed. Interest rates went up 500 basis points. And we look at our stacks, and we're trying to do something on the equity side. And some bank we've never heard of says, no. Everyone else says, yes. And you can have a guy with a 10% position, and he's like, I'm not doing that. You've got to pay me in part. Well, Morgan Stanley, you take them out of part, because you sold the loan to them. We never knew who they were. And that's the kind of negotiations you see. So, I think that's really good for us. I mean, relationship banking and the debt side is actually, when you get to these big deals, it's a big deal. And we've been doing it a long time, and we've got a great team. So, kind of interesting.

I'd encapsulate that by saying, as the REITs and the banks have written less loans since COVID, you've certainly seen insurance, debt funds, and CMBS pick up the slack. As you look at the forward SOFR curve and expectations of forward rates, if rates do go down, you're going to have less annuity sales. Insurance is very yield-driven, and they will pull back. So, in that environment where we move to the forward curve and rates go lower, we expect that our position in the market will only improve versus insurance and debt funds and CMBS. And then the last thing I would say is Barry talked about data centers. The only thing that he didn't mention is that all of our loans have been made on sort of 15 or longer-year leases to sort of MAG-7 credit tenants on the other side. So, not a lot of speculation there other than getting the construction project finished, which we have significant time to do, and this core and shell is not that hard to figure out. So, we really like that space.

Got it. As always, a very interesting answer. I really appreciate it, guys. Thank you.

Thanks, Rick. Thank you, Operator.

Thank you. We have reached the end of the question-and-answer session. Mr. Sternlicht, look, I'd like to turn the floor back over to you for closing comments.

Thanks for joining us, everyone, and we look forward to talking to you next quarter. Have a great Memorial Day, I guess, as we enter the summer season. Stay well. And a public shout-out to Mark Cagley, who retired from the firm last month, and this is the first call in 10 years without him. Hope you're enjoying your retirement and listening in. And your handicap is dropping. Take care. Thanks, everyone. Bye.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.