Related-Party Transactions

3 Months Ended

Mar. 31, 2022

Related Party Transactions [Abstract]

Related-Party Transactions

Related-Party Transactions

Management Agreement

We are party to a management agreement (the “Management Agreement”) with our Manager. Under the Management Agreement, our Manager, subject to the oversight of our board of directors, is required to manage our day to day activities, for which our Manager receives a base management fee and is eligible for an incentive fee and stock awards. Our Manager’s personnel perform certain due diligence, legal, management and other services that outside professionals or consultants would otherwise perform. As such, in accordance with the terms of our Management Agreement, our Manager is paid or reimbursed for the documented costs of performing such tasks, provided that such costs and reimbursements are in amounts no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s-length basis. Refer to Note 17 to the consolidated financial statements included in our Form 10-K for further discussion of this agreement.

Base Management Fee. For the three months ended March 31, 2022 and 2021, approximately $21.5 million and $19.2 million, respectively, was incurred for base management fees. As of March 31, 2022 and December 31, 2021, there were $21.5 million and $20.3 million, respectively, of unpaid base management fees included in related-party payable in our condensed consolidated balance sheets.

Incentive Fee. For the three months ended March 31, 2022 and 2021, approximately $29.0 million and $13.1 million was incurred for incentive fees. As of March 31, 2022 and December 31, 2021, there were $29.3 million and $51.2 million of unpaid incentive fees included in related-party payable in our condensed consolidated balance sheets.

Expense Reimbursement. For the three months ended March 31, 2022 and 2021, approximately $1.7 million and $1.5 million, respectively, was incurred for executive compensation and other reimbursable expenses and recognized within general and administrative expenses in our condensed consolidated statements of operations. As of March 31, 2022 and December 31, 2021, there were $5.8 million and $4.9 million, respectively, of unpaid reimbursable executive compensation and other expenses included in related-party payable in our condensed consolidated balance sheets.

Equity Awards. In certain instances, we issue RSAs to certain employees of affiliates of our Manager who perform services for us. During the three months ended March 31, 2022 and 2021, we granted 200,972 and 981,951 RSAs, respectively, at grant date fair values of $4.8 million and $19.6 million, respectively. Expenses related to the vesting of awards to employees of affiliates of our Manager were $2.7 million and $2.4 million during the three months ended March 31, 2022 and 2021, respectively, and are reflected in general and administrative expenses in our condensed consolidated statements of operations. These shares generally vest over a three-year period.

Manager Equity Plan

In May 2017, the Company’s shareholders approved the Starwood Property Trust, Inc. 2017 Manager Equity Plan (the “2017 Manager Equity Plan”), which replaced the Starwood Property Trust, Inc. Manager Equity Plan (“Manager Equity Plan”). In November 2020, we granted 1,800,000 RSUs to our Manager under the 2017 Manager Equity Plan. In September 2019, we granted 1,200,000 RSUs to our Manager under the 2017 Manager Equity Plan. In April 2018, we granted 775,000 RSUs to our Manager under the 2017 Manager Equity Plan. In connection with these grants and prior similar grants, we recognized share-based compensation expense of $4.5 million and $5.9 million within management fees in our condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021, respectively. Refer to Note 17 for further discussion of these grants.

Investments in Loans and Securities

In March 2022, we originated a new loan on the development and recapitalization of luxury rental cabins with a total commitment of $200.0 million, of which $84.5 million was outstanding as of March 31, 2022. The loan bears interest at SOFR + 6.50% plus fees and contains a term of 24 months with three one-year extension options. The proceeds were partially used to

repay an existing $99.0 million first mortgage loan that we originated in February 2020. Certain members of our executive team and board of directors own equity interests in the borrower.

During the three months ended March 31, 2022, the Company acquired $623.9 million of loans from a residential mortgage originator in which it holds an equity interest. Additionally, as of March 31, 2022, the Company had outstanding residential mortgage loan purchase commitments of $306.7 million to this residential mortgage originator. Refer to Note 8 for further discussion. During the three months ended March 31, 2022, the Company received proceeds of $4.4 million from the sale of loans to the residential mortgage originator.

Lease Arrangements

In March 2020, we entered into an office lease agreement with an entity which is controlled by our Chairman and CEO through majority equity ownership of the entity. The leased premises serve as our new Miami Beach office following the expiration of our former lease in Miami Beach. The lease is for up to 74,000 square feet of office space, has an initial term of 15 years and requires monthly lease payments starting in the tenth month after lease commencement, which is pending final completion of the premises. The lease payments are based on an annual base rate of $52.00 per square foot that increases by 3% each anniversary following commencement, plus our pro rata share of building operating expenses. Prior to the execution of this lease, we engaged an independent third party leasing firm and external counsel to advise the independent directors of our board of directors on market terms for the lease.  The terms of the lease were approved by our independent directors. In April 2020 we provided a $1.9 million cash security deposit to the landlord. During the three months ended March 31, 2022, we made payments to the landlord of $1.8 million for reimbursements relating to tenant improvements under the terms of the lease.

Other Related-Party Arrangements

Highmark Residential (“Highmark”), an affiliate of our Manager, provides property management services for properties within our Woodstar I and Woodstar II Portfolios. Fees paid to Highmark are calculated as a percentage of gross receipts and are at market terms. During the three months ended March 31, 2022 and 2021, property management fees to Highmark of $1.4 million and $0.7 million, respectively, were recognized in our condensed consolidated statements of operations.

Refer to Note 17 to the consolidated financial statements included in our Form 10-K for further discussion of related-party agreements.