Related-Party Transactions

3 Months Ended

Mar. 31, 2025

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. 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, 2025 and 2024, approximately $23.4 million and $21.9 million, respectively, was incurred for base management fees. As of March 31, 2025 and December 31, 2024, there were $23.4 million and $23.5 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, 2025 and 2024, approximately $10.1 million and $19.1 million, respectively, was incurred for incentive fees. As of March 31, 2025 and December 31, 2024, there were $10.1 million and $12.7 million, respectively, of unpaid incentive fees included in related-party payable in our condensed consolidated balance sheets.

Expense Reimbursement. For the three months ended March 31, 2025 and 2024, approximately $1.2 million and $0.5 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, 2025 and December 31, 2024, there were $3.0 million and $2.7 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, 2025 and 2024, we granted 416,780 and 924,092 RSAs, respectively, at grant date fair values of $8.4 million and $18.8 million, respectively. Expenses related to the vesting of awards to employees of affiliates of our Manager were $2.4 million and $1.5 million during the three months ended March 31, 2025 and 2024, 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. Compensation expense related to the ESPP (refer to Note 17) for employees of affiliates of our Manager was not material during the three months ended March 31, 2025 and 2024, and is reflected in general and administrative expenses in our condensed consolidated statements of operations.

Manager Equity Plan

In April 2022, the Company’s shareholders approved the Starwood Property Trust, Inc. 2022 Manager Equity Plan (the “2022 Manager Equity Plan”) which replaces the Starwood Property Trust, Inc. 2017 Manager Equity Plan (the “2017 Manager Equity Plan”). In March 2025, we granted 1,350,000 RSUs to our Manager under the 2022 Manager Equity Plan. In March 2024, we granted 1,300,000 RSUs to our Manager under the 2022 Manager Equity Plan. In November 2022, we granted 1,500,000 RSUs to our Manager under the 2022 Manager Equity Plan. In connection with these grants and prior similar grants, we recognized share-based compensation expense of $7.1 million and $4.8 million within management fees in our condensed consolidated statements of operations for the three months ended March 31, 2025 and 2024, respectively. Refer to Note 17 for further discussion.

Investments in Loans and Securities

The following three related-party loan transactions were each approved by our board of directors, with those affiliated with the related transaction recusing themselves.

In January 2025, we co-originated 49% of a $388.4 million first mortgage loan for the construction of a luxury 81 unit condominium project in Miami Beach, Florida. Of our $190.3 million share of the total loan commitment, $61.1 million has been funded and is outstanding as of March 31, 2025. The loan has an initial term of four years with a one-year extension option (subject to certain conditions) and bears interest at SOFR (floor of 3.00%) plus 4.25%. This pricing was negotiated in a competitive bid process with a third party who is retaining the remaining 51% interest in the loan. An affiliate of our Manager is general partner of, and holds a 90% limited partnership interest in, the borrower. Because of the affiliated interest, we lack certain consent rights under the co-lender agreement.

In December 2024, we modified a loan that was originated in March 2022 for the development and recapitalization of a portfolio of luxury rental cabins, where our CEO and another non-independent member of our board of directors own minority equity interests in the borrower. In connection with a new $25.0 million investment in the borrower by a major hotel brand, we granted: (i) a 24-month term extension with a one-year extension option subject to certain conditions and with an extension fee due at maturity, (ii) a 2.25% reduction in the interest rate to SOFR + 4.25%, and (iii) deferral of half of the remaining interest payments until maturity in December 2026. Previous modifications to the loan were as follows: (i) in July 2023, we agreed to a 10-month 300 bps partial interest payment deferral, which in January 2024 was extended to December 2024; and (ii) in June 2024, we deferred all remaining interest payments due under the loan and formally extended its initial maturity until December 2024. The loan had an original commitment of $200.0 million, of which $147.8 million was outstanding as of March 31, 2025. The deferred interest balance was $14.1 million as of March 31, 2025.

In connection with the May 2024 refinancing of our Medical Office Portfolio, we obtained $450.5 million of securitization debt (“MED 2024-MOB”) and a $39.5 million mezzanine loan (the “Mezz Loan”). The Mezz Loan and the $23.0 million horizontal risk retention certificates of MED 2024-MOB (“HRR”) were funded by affiliates of investment funds which are managed by the real estate investment firm for which one of our independent directors is co-founder and co-chief executive officer. One of such affiliates also serves as controlling class representative of MED 2024-MOB. Both the Mezz Loan and the HRR bear interest at SOFR + 5.50% and have an initial term of two years, followed by three successive one-year extension options. The final structure and cost of debt for this refinancing was selected after a competitive marketing process led by a third party broker.

In July 2024, we purchased all the controlling class certificates in the newly-formed Freddie Mac multifamily mortgage trust, FREMF 2024-KF163 (the “Trust”), for their aggregate principal amount of $77.1 million. The certificates have a pass-through interest rate of one-month SOFR + 6.00% and an expected final distribution date in May 2034. The Trust holds 26 SOFR based floating rate multifamily mortgage loans with a total principal balance of approximately $1.0 billion, of which affiliates of our Manager are borrowers under 11 of those loans totaling approximately $495.0 million at the Trust’s inception and as of March 31, 2025. As directing certificate holder, we are considered the primary beneficiary of, and therefore consolidate the Trust as a securitization VIE. However, while we are able to appoint and remove the special servicer of the unaffiliated loans in the VIE, we cannot name ourselves or an affiliate as special servicer, and we cannot remove or direct the third party special servicer with respect to the affiliate loans.

In December 2012, the Company acquired 9,140,000 ordinary shares in SEREF, a debt fund that is externally managed by an affiliate of our Manager and is listed on the London Stock Exchange, for approximately $14.7 million, which equated to approximately 4% ownership of SEREF. As of December 31, 2024, we held 4,480,649 shares of SEREF that had not yet been redeemed. During the three months ended March 31, 2025, 1,060,265 shares were redeemed by SEREF, for proceeds of $1.4 million, leaving 3,420,384 shares held as of March 31, 2025. As of March 31, 2025, our shares represent an approximate 2.3% interest in SEREF. Refer to Note 5 for additional details.

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, as amended in September 2022, is for 64,424 square feet of office space, commenced July 1, 2022 and has an initial term of 15 years from the monthly lease payment commencement date of November 1, 2022. The lease payments are based on an annual base rate of $52.00 per square foot that increases by 3% each November, 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 and subsequent amendment were approved by our independent directors. In April 2020, we provided a $1.9 million cash security deposit to the landlord.

During both the three months ended March 31, 2025 and 2024, we made payments to the landlord under the terms of the lease of $1.6 million for rent, parking and our pro rata share of building operating expenses. During the three months ended March 31, 2025 and 2024, we recognized $1.8 million and $1.7 million, respectively, of expenses with respect to this lease within general and administrative expenses in our condensed consolidated statements of operations.

Other Related-Party Arrangements

In March 2025, an affiliate of our Manager acquired Worldwide Mission Critical (“Worldwide”), an entity which provides asset management services for loans secured by data center projects, including construction loans. Prior to Worldwide’s acquisition by our Manager, we entered into a $0.3 million contract with Worldwide to provide services on a $550.0 million construction loan that was originated by us during the three months ended March 31, 2025. During this period, we incurred less than $0.1 million of costs related to this contract.

In 2024, we performed certain services on behalf of two investment funds managed by affiliates of Starwood Capital Group. We billed Starwood Capital Group $7.7 million for estimated costs incurred in connection with these services, which is reflected within other assets in our consolidated balance sheet as of December 31, 2024 and March 31, 2025.

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, 2025 and 2024, property management fees to Highmark of $1.7 million and $1.6 million, respectively, were recognized within our Woodstar Portfolios.

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