Greetings. Welcome to Starwood Property Trust First Quarter 2020 Earnings Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.At this time, I'll turn the conference over to Zach Tanenbaum, Director of Investor Relations. You may begin.

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 31, 2020, 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 will be discussed in 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 Chief Executive Officer; Jeff 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, Zach, and good morning, everyone. Despite a clearly volatile market backdrop resulting from the impacts of COVID-19, our liquidity, core earnings and portfolio performance were strong this quarter, once again demonstrating the benefits of our diverse platform with multiple business lines.Core earnings for the quarter was $162 million or $0.55 per share. However, as I will discuss later, our GAAP results were impacted by the current economic environment and our implementation of the new credit loss accounting standard known as CECL. We do not believe the GAAP charges we took against our assets this quarter are reflective of the credit characteristics of these assets.I will divide my comments this morning into three main parts. First, I will discuss our quarterly results across each segment. I will then highlight several items that impacted our GAAP results, including CECL and mark-to-market, and finally, I will conclude with comments on our capitalization, financing facilities and liquidity.Our performance this quarter was led by our largest segment Commercial and Residential Lending, which contributed core earnings of $148 million to the quarter. On the commercial lending side, despite the increase in our loan loss allowance resulting from the implementation of CECL, we experienced no losses or impairments and the credit quality of our portfolio remains strong with a weighted-average LTV of 61%. In fact, one of the loans we risk rated a five last quarter, which carried a $3 million loan loss allowance, paid off this quarter at par.During the quarter, we originated seven loans totaling $853 million with an average loan size of $120 million. We funded $1.1 billion of loans in the quarter, including $350 million under preexisting loan commitments. We also received $703 million in loan repayments, bringing our commercial lending portfolio to a record, $9.5 billion.Also this quarter, over 90%…

Thanks, Rina, and good morning, everyone. It feels like much more than 10 weeks ago that we last spoke and we hope you and your families are healthy and safe. We closed our offices on March 15, and since then, I've been working alongside other Starwood executives out of Barry's house in Miami.Despite the circumstances, the senior management team has never been more connected, and I am proud of the hours and work the entire organization has put in to optimize our liquidity position, protect our balance sheet, and importantly, ensure we come out of this period in a position of strength.We are confident enough in our excess liquidity position that we have in fact recently gone on the offensive and begun investing capital selectively at extremely attractive level. We moved our earnings call up three days this week to provide more information to the market earlier and heard that people think we did so to allow us to come to market quickly to raise capital. That is not our plan. We have no need or plans given our excess liquidity to raise debt or equity capital in the near future, absent an unforeseen opportunity.We have been saying for over seven years that our diversified investment strategy was built to perform well in normal markets and outperformed in periods of direct. Q1 gave us both. The strength and quality of our multi-cylinder portfolio has never been more apparent.We have $3.3 billion of unencumbered assets on our balance sheet, which include unlevered loans and securities, and various other sources of liquidity. As Rina said, after paying down our financing lines by over $250 million since COVID-19 and paying our dividends, we have $870 million of cash and undrawn capacity.We are in the unique position of having substantial unlevered assets, equity and…

Thanks, Jeff. Thanks, Rina. Thanks, Zach, and thank you all for dialing in this morning. This is a strange process and I know you're all enjoying the strange time. It is odd to be doing earnings call from your home and with your colleagues home in their own locations.I'd like to start my comments. First of all, I know you just heard somewhat exhausted detail about the plumbing of the company. From the start, we said we'd be transparent. We try to be consistent, predictable, and we built the company to do that. We built the company with multiple business lines with different credit characteristics that would react differently to different times.And it was really when the tide goes out that you see the strength of the platform. And there you can simply look at the cash on the balance sheet, the property book and some of the other incredibly valuable assets this company owns.I wanted to back up and compare this time because I saw what you all saw, which was the comparison of the 2007, 2008 crisis to today, and the fact that commercial mortgage REITs most of them blew up in 2007, 2008, one of them, which I actually started Starwood Financial that became iStar actually survives, but many of them disappeared.If you go back to that time period, for those of you who weren't analysts or even alive, there was negative leverage, people who were lending at 6%, 7% property yields to 3%, 4% and 5%. You also had an undisciplined lending market.You had typically loans 95%, 80%, 85%, 100%, 105% of LTV. It was a totally different time period and the mortgage REIT was constructed totally differently. I want to make sure that we separate the commercial mortgage REITs, which were primarily a commercial mortgage…

Thank you. [Operator Instructions] And our first question is from the line of Doug Harter with Credit Suisse. Please proceed with your questions.

Thanks. Can you talk about how you're viewing buyback in the context of those opportunities that you mentioned over and above what you did in March?

Obviously, in the world as it is falling apart early mid-March, and we suspended the buyback. And again, it all fits together. It's a puzzle. We're keeping liquidity of $800 million. It seems like not the smartest thing to buyback stock and to hopefully wait for the stock to recover to levels on its own. We can't fight these ETFs, and it’s simply just a waste of energy and capital.I think, we maybe the only commercial mortgage REIT that's bought back stock that maybe I'm not sure of any others that have done so. That's because we come from protect the book value of the company, and I think we're going to do – we're going to sit for now on that. We're not going to repurchase stock right now, somewhat enticing, but there's – we also have some bonds outstanding that are trading cheap. And so we’d rather, if we could do so, repurchase the debt of the company, which was close to investment grade and now doesn't trade like much. So that's probably something that we focus on first. We are focusing on first, I should say.

Great. And then, I guess the opportunities that you talked about. I guess on the loan side, would that solely be kind of newly originated loans or are there kind of loans in the secondary market that you’d be looking at kind of given dislocations, just kind of the thoughts around that?

Securities, one of the things we're looking at is buying some whole loans, but there are security securitization – pre-securitization, and we are looking at some. There will be some people that need to refi stated maturities, and they'll probably take fairly significant spread widening if you will.I mean the markets are better, but they're not great. And we have urged Congress to do what they did in 2007, 2008 by the investment grade, all of the investment grade securities of CMBS. So far, they've put in high-yield debt for some reason, but they did not put an investment grade non-government CMBS. They’ve put the AAAs. As you know, I don't believe that repurchased facilities are even actually activated yet.But I think it would help the property markets if they did include, which they did in 2007, 2008 or 2009, whenever that chaos was, the rated classes of commercial mortgage-backs. So I think you see a lot more stability. And the problem in the market as you saw in March was the repo banks and the repo facilities are quite different than the guys who are individually approving loans that go on their credit lines.They're more mechanical in what they do. And we were looking at situations. I mentioned one of them where – our security was 50% of what one of the largest PE firms in the United States paid for the assets not six months ago. And when they told us what they were marking the bonds at, I said, we'll then deliver us all the bonds at that price we would love to buy them all. And of course, you can't find $5 million worth.They're just artificial marks, and they were driven out of some computer. And any property guy in the nation would love to buy the assets, that price, including us. And so it's a tricky time and as you know, as we said, we have less than like – just over a $100 million of debt on almost $400 million of position left in the security suite and we don't believe we have any real issues that are going forward.So we believe that these are money, good paper. I mean if we have the financial strength, which is weighted out. We had the same situation a couple of years ago where the CMBS book was marked down and it recovered fully and actually went to a gain again.So look, this is going to be different. This is going to be slower. So we do think that the country will open and cash flow will be restored to quality assets in good locations. And in the hotel space, the resorts will do better than the big urban boxes and the big convention hotels of either Atlanta or New Orleans or Vegas, and Manhattan. So I think our exposure, very little exposure to Manhattan frankly in the aggregate, very little.

And Doug, it's Jeff. I would say that Barry and the Board has certainly help guide us towards what our future will look like and it look a little bit different. We'll avoid spread mark repo to the extent that we can. There are opportunities in securities on leverage. CMBS, BBB for example, probably traded at 11%. And as you know with 300 people at LNR, we can underwrite every loan and every deal, and we've been very successful in doing that.So there are opportunities in securities without taking leverage, but we as an industry will take more spread – less spread mark leverage than we have in the past. As Barry said, we have very little left against a decent size book there, so not a place where we're particularly worried.I think when we look to get aggressive on the CRE lending side, you will see us selling more A Notes and using less warehouse as an industry. Our last two earnings calls, we've told you that our company has already done that and we had brought our warehouse exposure down significantly below 50% of our book.I think before others did and I think you'll see others joined that where we all try to sell more A Notes and have less potential credit marks in an unknown world. So our playbook will change a little bit, but we have the resources to do it and these are things that we've been doing for a long time.

Thank you. Our next question is from the line of Rick Shane with JPMorgan. Please proceed with your question.

Hi guys. Thanks for taking my questions this morning. I think we’re right now in a situation where you've got long-lived assets that are facing somewhere between three and six to nine months of revenue compression. I'm curious given your multi-pronged approach, does it make sense to in that environment move more towards ownership as opposed to being a lender? And will there be opportunities there for you?

Thanks for the question. You started within the REIT owns about, I think, it’s 15,000 or so apartment units and overall 80,000 apartments. So our collections have been – I think 97% in our portfolio. So I'm going to first object to the tenure that our revenues are compressed because in what we own in the geographies we own.We don't own anything in New York City. We don't own anything in the West Coast of California, where populism is infected the desire to pay their rent. And in our portfolio – and the REIT is not in, it's in Florida, almost exclusively, so Northern Florida in fact.On the office side, I think 94% or 95% of our tenants have paid 96%. The real weakness in the office side is not – is from the shared office guys as you would think. And in our experience, one of the largest that's quite, what’s the word talked about a lot. That's not the word, but I couldn't think of the other words, notorious. That's not the word either I want it. They paid in every location, but one and we're negotiating that one. So office has held up pretty well.Again, it obviously depends who your tenants are. We don't have any of the airlines companies tenants. And in our portfolio, we're not seeing any issue, and Rina mentioned that. And again, when you're 60% LTV, you guys are going to try to pay you if they can. And if they don't, we probably would like to take the property back. But that's not our core business.I don't think given the uncertainty in the markets, hotels zero cash flow, and they are all shut. Actually it's not quite true. The very low end of the market is actually doing fine. We have a…

Rick, I think you asked specifically and very partially excited about properties and whether we would be adding here. I think that with low to mid teens available at 70 LTV lending and very little transparency on cap rates in high quality assets that we would buy if we were to add to the property sector plus the fact that cap rates are relatively low still and our financing costs would go up on those. I just don't think you can return double-digit yields today versus where our dividend yields. The property segment probably got to be a hard place for us to add in the near future.

Thank you. [Operator Instructions] The next question comes from the line of Don Fandetti with Wells Fargo.

Hi, good morning. It's definitely good to see you guys having made the right moves to get to the other side. Wanted to see, Jeff, if you could talk a little bit about the hotel loan portfolio. Are the majority of the owners just prepared to sort of dig into their pockets for a few months? Is it kind of playing out like you thought? And can you give us a sense on how many of the loans have been modified? Obviously that's proprietary to some degree, but can you just give us a sense of that?

Great. I think, I have Mark Cagley on the line, who is our Chief Credit Officer. I would say that, one of the main things that we look at is the sponsor capability and their financial condition when we go into a loan and we have some very well heeled sponsors on the hotel side, both other sides of our business. We expect them to pay at a much higher rate and to avoid special servicing and avoid forbearance and other things.And then you have some properties where you certainly need to work with people. And we've been fairly open about that. We were very quick to call our repo lenders and cut deals where we got ourselves six to nine months to be able to allow us to put hotel borrowers who needed the help into forbearance, come up with a plan together as their partner and try to figure out a way that we could all come out on the other side.So we did that. We paid a lot of – a decent amount of money to do that, but it gave us the ability to sleep very well at night by the fact that we have nine months to work this out. And it gave our borrowers opportunity to get into loans the way that they wanted to.You look to our downgrades this quarter and it sort of speaks to what happened in hotel. We had fairly significant amount of loans downgraded. We moved $940 million worth of loans…

Downgraded by us.

I apologies Barry. On our one through five rating scale, where we start alone at a three and they generally tend to stay there. We have very little in the four to five buckets. We moved out there and we moved them there because we have a very quantitative way of thinking about it between sponsor, capability and loan structure, that's about 40% of the risk rating we internally give ourselves.But the other two pieces loan in collateral performance relative to underwriting and the quality and stability of project cash flows, those are about 60% and clearly on hotels, those two pieces of the ratings had to change because of what's going on COVID, and in fact, that they just don't have revenue they're not open. So we use it as an opportunity to move a few ratings worse.We think these are ratings that we will move back the other way when these hotels open up again or being consistent with the guidelines that we've set up for ourselves, we wanted to make sure that we did that and that's the vast majority of what we moved was on the hotel side. I'm going to turn it to Mark Cagley to talk…

Yes, before Mark does it, you can't say a hotel loan got better, right. So I couldn't say, hey, where they had the – so we moved them. It doesn't mean we think as Rina started in her comments, we had a five loan payoff. So it doesn't really mean much. It's just for our own management.

Mark, do you want to just speak specifically about how we're dealing with hotel borrowers and talk about some of the things that we've done in percentages of loans that we're talking about here?

Sure. Well, I'd love to. Hello everybody. This is Mark Cagley. Yes, in our loan – hotel portfolio about half of the loan portfolio in terms of numbers of borrowers have asked for some sort of payment relief, sort of speaking glass half full, that means that half of them have not asked for that and are planning to and continue to make full interest payments on the loan.So we have no borrowers whatsoever that we plan to completely waive all interest payments on. So we're working our plans with those borrowers to make partial payments and potentially defer partial payments, but then there will be on cash flow sweep until it's repaid as things rebounded into the market.So our borrowers have been universally committed to support their properties and to put equity in and to use resources and use PPPs funds to support the assets as we've tried to figure out what's going to happen for the next three to six months with these assets.

Okay. Thank you.

I'll note that all but one of our 120 or so loans in the CRE lending book paid their debt service payments in April, and we'll know soon in that.

Great.

Our next question is from the line of Jade Rahmani with KBW. Please proceed with your question.

Thanks very much. Good to hear from all of you and I hope you're all doing well. I've gotten a lot of questions about the company's liquidity position over the last month, as you can imagine, and just going through details for example, the unencumbered assets. I was wondering if you could provide color on the billion of additional liquidity that you cited. What does that consist of? And on the unencumbered assets, how does that break out between senior unlevered positions and subordinate positions? How much of the unencumbered assets can actually be tapped if necessary?

Thank you, Jade. Thanks for the question. Appreciate it. We use the number a little bit of over $1 billion because we felt like we have a decent amount and more than that, our property portfolio alone at our current mark, if we were to liquidate our property portfolio, which create over $1 billion on its own.In addition to that, I talked to my scripts about our ability to sell LIBOR floors to unwind FX hedges. Those could create well north of $100 million. We have other unencumbered assets that could create north of another $100 million. We have some assets we could sell. We talked about the two industrial properties. We have another industrial property that we could sell.So all in, you get to over $1 billion with just the property portfolio and everything else is above that, over and above the $870 million of cash and cash equivalents or cash and approved, but undrawn. That's still on the balance sheet today. So we felt really comfortable that if we had to, we could make the moves. Those are not moves that we’re jumping into making.We certainly have looked at levering some unencumbered assets over the course of the last month and a half. And we've done that in a few instances, but we haven't made any panic moves, and as Rina said, we haven't sold any assets that are lost to try to create liquidity in an emergency because we haven't felt like we're there.

Okay.

Every sale has an earnings impact, right. So we're not just trying to pile up cash. We're not having a liquidation sale here.

Okay, great. And then secondly, can you touch on, just your broader expectations in terms of commercial real estate prices, maybe specific to the hotel space. Do you have a view on how much values have declined or would you say it's too early to tell?

Well, I think it's way too early to tell Jade. And it's like – again, it depends where you are in the cycle. What's the casino worth in Las Vegas and that could be the hardest call. That's likely to be those slowest to recover, primarily just big groups aren't going to book Vegas for a while. I just can't see that happening right now.On the other hand, I think a resort hotel, probably comes back pretty quickly, particularly if it's smaller and higher end. So it’s asked – if I asked that if you run the math, you're probably down 10% to 15% in value. One of the things as a property investor that you're sort of scratching your head about, rates are going to be lower, longer than you've had pre-COVID like you're going to – you see a curve and a LIBOR curve and you go out three years and I think it's like never gets above 50 or 60 basis points. That supports property and just as the equity markets are being held up by, there's no place else to put cash. The property market should be held up even in a slow growth scenario by the fact that they produce yield, which is incredibly rare and precious in this world today.So then for the underwriter of the equity, it's the question of direction how the rent is going. In hotels, they will recover. I personally don't think Americans are going to change their habits forever. I think this is the flu. It started out as a flu. It's a bad flu. Even the data today is all over the place about if you're zero to 30, your death rate is not measurable. You'll get the flu and you'll recover from the flu, presuming you don't have some of these more serious preconditions. But obviously this is an awful disease that is really affecting the aged, and they have to stay at home and stay to take care of themselves.And I think everyone else can kind of go back add it and recognize we'll have to moderate and change our policies and procedures as this thing unfold. So I can't tell you, tell me when they're going to have a cure. And I'll tell you what the decline in the hotel is value. But nobody's selling hotels or buy hotels, nobody, and believe me, we look. We try to buy here and there, but their values of – they're not going to sell on 11 cap on trailing 2019 earnings. Nobody's doing that, so not yet. That's why some of these markdowns frankly, or these pricing and some of these securities are embarrassing. Like, it's sort of silly.

And the hotel borrowers that had the CARES act help them weather the storm. They have interest reserves. Some of them…

They are not public ones.

So they’ve had opportunities to come up with ways to help weather the storm.

But let's be candid. If the country doesn't open, these companies’ assets will run out of ability to support themselves. Sadly, the real estate taxes and the insurance costs haven't dropped even though the properties dropped in value. The municipalities are not exactly giving waivers on real estate taxes and then you have to actually keep the box operating.So if we don't get, I think all hotels will figure out how to operate with lower breakevens with fewer, less profitable parts that won't be restaurants. There may not be room service, but they will try to fill heads and beds and staff to demand. They'll work with the unions. I know they're trying to. The union structure in cities like New York will not allow a hotel to make money at 30% or 40% occupancy.So either the union will change its structure or these hotels will never open or they all go bankrupt in the major union cities. So I'm looking to the unions to actually help the owners open these assets and get their workers back on payroll. But in the breadth of the country and the non-union markets, we won't be surprised how Jeff and these management teams will be to make money at much lower breakevens than you think.Full service hotels have the same margins as limited service hotels in the rooms. They just don't have that in the other part of their box, like the banquets, which probably will not happen or there'll be weddings outside, and other parts of the hotel P&L, which are lower margin will simply cease to exist for awhile until these hotels gets open and stabilized.

Thank you. The next question is from the line of Stephen Laws with Raymond James. Please proceed with your question.

Hi, good morning.

Good morning, Steve.

The dislocation that's out there and everything that we're all seeing, can you talk about any opportunities that may present to, in the past, you've obviously acquired LNR. You've moved into single-family rental, non-QM resi, number of things you've tried to acquire CreXus.Is there anything out there that either due to the higher relative stock multiple or just simply attractive business lines you think fit that you're revisiting now that maybe more attractive given what's going on and cheaper to add that to the Starwood platform?

I'll take that. Sure. We're looking all the time. We have to do a relative value trade. So we're at 0.7x book. We can't pay more than 0.7x book for them. So that has to be that kind of combination. We can issue stock down here unless it was like, 35 IRR or something. So we make up the discount to book. I made that up. I don't know what the number is, but there's a number that you might be willing to do something like that.And in fact, I looked at a bunch of situations, but to use up let's say we have $400 million of - $400 million, $500 million of what I would call excess liquidity. We always ran the company with like $250 million reserve cash. So the rest of it is sort of excess. We'd love to put it to work, but it would be imprudent to put it all to work given nobody really knows if there'll be a second downturn, how this opening will work. So we have to balance the two.And yes, there are companies in our business and companies or product lines we would love to look at. But simply like I said before, I think transaction volumes are down like 90% in property, not many people are willing to give up yet. And there are situations that we're looking at, but that are attractive. But again, we have to preserve our ability. We're not going to put all in red here, but we want to preserve our ability to continue to grow and prosper and be the dominant player in this business for the next 20 years. So that's our goal.

Yes. And then as a quick follow-up, I think in the prepared remarks, you guys mentioned in the discussions on the hotel financing had gotten, I think a list of some pre-approved modifications that they're okay with. Can you give some examples of what those modifications are that you're able to offer that have really already been addressed by your counterparties and just kind of any examples of those?

Sure. Mark Cagley, he spoke earlier. He is going to get be on twice today because he's been on the front line as our Chief Credit Officer dealing with each one of these loans individually, and maybe I'll hand to Mark to go through the types of things that he's been dealing with on the modification.

Sure. High level, as we talked about, Steve, the forbearance or the modification of the payments frame is obviously been near and dear to our heart the most. But in general, people were talking to them about FF&E reserves. If the flag is allowing them to defer future contributions for a period of time where we have approval to do that, we have approval to use some of the FF&E reserves as long as we're making the decision if the property is newly renovated or a newer property and doesn't need those reserves in the near-term, then we have approval to do those kinds of things as well.We're not eliminating any LIBOR floors. We're not forgiving interest. So it really is approval to close hotels as Barry said. I would say probably half of our hotels are closed. Most of them are closed or operating at 10% kind of occupancy levels for transient workers that need to be there or for others. So closure hotels, use of FF&E, how we’re dealing with that payment forgiveness, how long we're doing the accruals for, we're trying to keep them shorter rather than longer.Barry asked us to keep them shorter, so that we can stay within the window within our lines and also just see what the world looks like, 90 to 120 days out. So those are the – we're modifying some of their extension tests that give them room to qualify for additional time within the loan period. Those are really the basics.

And I'd say back to your first question. We do think we'll be going into a period of less competition, whether it's our direct tier or investment banks who lose money every 18 months and pull back when they do and we’ll have lost money in this quarter and we'll be less aggressive in our state or just being able to find loans that stand on their own on an unlevered basis, which I think we'll be able to do.And if we spend liquidity there, we can always get liquidity back by levering those later if we needed it. But I think there'll be a decent amount of opportunities coming through in the lending space in the next few months, as Barry said.

Our next question is coming from the line of Steve Delaney with JMP Securities. Please proceed with your question.

Good morning, and congrats on a strong report given this environment. A bit surprised by your remarks about the opportunity in residential. The Fed has not put AAA RMBS in [indiscernible] yet, and we've seen a lot of problems in warehouse financing. So I'm just curious, Jeff, if you could comment on what's working for you and do you think that you can see a securitization getting done in the next three to four months? Thank you.

Thanks Steve. Appreciate it. Yes, I do. You're going to have a CMBS deal later this week. You'll probably have a couple more in a week, week and a half. So we think that market is coming back.And talking to our bankers who are talking directly to the bond buyers, we think that there's a very good chance that we could get a non-QM securitization done in the next month or so.We don't need to. We have terrific financing lines that we actually earn as much or more, leaving them on. Our goal has always been to reduce those and we think we're a month away from being able to be in the market in a pretty accretive way.I think the only way like we’re talking about earlier, we're going to avoid, we're going to do less things with potential spread marks. We're going to do less on warehouse, more A Notes. We're going to go to a pretty plain vanilla playbook here. So as we look to add, and Barry mentioned that, and I sort of mentioned that, I think if we can get term financing, non-recourse, non-mark-to-market until a securitization, that's super interesting.And depending who the holder is, if it's a bank who owns the loans, the whole loans, I want to get out of the whole loans and it's willing to offer that, that's something that's super interesting to us. So I don't think you'll see us increasing our potential spread mark risk in any way in the book given what we've seen in the last couple of months here.But I think there will be some terrific opportunities and there have been some terrific opportunities to do things where you get non-recourse, non-mark-to-market term financing on assets that are frankly trading at $0.90 on the dollar or low $0.90 on the dollar that going through the great financial crisis took less than 1% of losses on assets like this.So it's an example of places that I think are dislocated. And specifically, you just have more duress from the mortgage REITs and banks and originators in that space probably than on the commercial side. So we brought that up.

Yes. No question. Thanks for the comments. That's it for me.

Thanks Steve.

The next question comes from the line of Tim Hayes with B. Riley FBR. Please proceed with your questions.

Hey. Good morning, guys. Thanks for taking my question. Just a quick follow-up on Steve's question there. I know that you were under contract to acquire an originator. Can you just remind us where you're at in the process there and what type of capital equipment that could entail and that's kind of still on track to close?

Sure. Thanks for the question. For capital perspective, it's really not going to change anything. It's a relatively small one. And we've been working with the seller now for a good amount of time. We're going to continue to work with them through this quarter and we'll see how it plays out. But there's no great rush to get over the finish line. We have some things that we need to work through. But when we do, it will not be a major capital difference in any way for us. So we're looking forward to getting that over the line. But we've been taking our time with it, given the market conditions.

Okay. Got it. That's helpful. And then just one quick, one more for me. You noted Jeff just added resources at LNR given how busy that platform is right now, just wondering if in the near-term, maybe the next quarter or two we should see kind of the increased staffing there weigh on earnings power, and then what level of delinquencies we'd really need to see for those fees to…

Yes. I think the increased staffing decrease earnings power. We will have increased earning power over the next few years. I mentioned $14 billion of loans over 500 bespoke loans that a large number of them will get – we will get fees on over the next 18 to 24 months. Those don't happen in a quarter. The revenue side won't pick up next quarter.You're setting yourself up to the long run. It's why we've gone into so many partnerships on our special servicing to have to own less CMBS, particularly own less retail oriented CMBS, but have more servicing, significantly more servicing today than we did two years ago. It's something that we thought was really important for our firm. We're now in a position to start harvesting that. We fortunately with 350 employees have a lot of people who have had some slack.There are areas that we're doing less or doing less investing on the CMBS side. We're doing – we're writing less conduit loans, so we've been able to repurpose a significant amount of people to help to service or bridge this short period of time where we're onboarding so many new loans. But it's the beauty of having a very large company with real estate executives who have kind of grown up through different areas of the company.So when we needed 12 or 15 people, we grabbed them and they've mostly been through – rotated through, understand the business or they work there full time in the servicers. So we're able to repurpose people within the company to make sure that everybody is being used optimally.

So one thing I'd add, just the service, you just think about how servicers get paid. Most people are – anyone asks for forbearance, it has to be approved by the special. So the loan comes in and these are forbearance. We don't get paid a ton of money for approving a forbearance transaction. Where the servicer begins to make a lot of money is when the loans default, they have to work them out, and they ultimately have to resolve the loan and sell it or take back the asset.So it's early in the lifecycle. The servicer company once made hundreds of millions of dollars. While it’s be exciting, it probably would mean that we've faced more issues on some of our hotels on the other side of the house. So we're happy here where we are, and it's nice to see that revenue stream increase, but don't think of it as a massive windfall yet. It's just a hedge against everything else we do.

And I'll throw out that there's been a lot of discussion over the last few months about servicing advances. We are not responsible at special service around CMBS deals to make any servicing advances. There's no potential liquidity impact of that. We know that that gets confusing for people. It's a confusing topic, but that does not fall to the special servicer in a CMBS deal.

Appreciate the comments.

Thank you. Our final question is from the line of George Bahamondes with Deutsche Bank. Please proceed with your question.

Hi. Good morning. I just had follow-up for Mark or anyone on the team. Are you guys able to disclose the number of borrowers in the portfolio who have asked for interest deferral, forbearance or other loan modifications?

Are we going to disclose it? I don't think we probably will. Mark, do you want to speak briefly in percentages, weightings between interest deferral, forbearance and modification, where you’re seeing most of it? I think you partially answered this earlier.

Yes. It is in the hotel book as Barry points out. There's a couple in the other category that where they've asked for interest accruals, but quite frankly, we're not inclined to do that. Our approach with this is the borrower has the ability to pay and the resources to pay, if they have a significant levels of equity in the transaction, which most of our borrowers do to protect, we expect them to stand up for their property.And so Jeff said in the earlier comments, that I would say that, round numbers that we've had probably 60% of the book asks for accruals. We're not giving it in all cases and – or partial accruals. We're not giving full accruals to anybody at this point.So I would say half of the ones that have asked for it. And I would say 25% round numbers of the total loan book have asked for some sort of modification. So you're doing the math there, it's 25% of the total book and half of those, 55% of those, are getting some sort of interest rate deferral. So when you look in the total loan portfolio, it's 12.5%, 13%, 14%, it would get some sort of monetary deferral for a period of time.

Great. Thanks for the color there Mark.

Thank you.

Just as a comment that is mostly the hotel book of the loan book. Remember, our loan book is $9 [rough] billion and the total asset base of the company is 17, something like that, [indiscernible]. So it’s 25, I'm guessing 80% of that is hotel. And it's of the 9 out of 17.

Thank you. At this time, I'll turn the floor back to Mr. Sternlicht for closing remarks.

Well, thank you everyone. I'm glad you could join us today. Hope we provide some clarity to you and we appreciate your support and interest in the company. And again, I want to thank all the people at Starwood Property Trust. We've done virtual cocktail hours, and in a strange way, we're better together. We're getting through this, and I look forward to a $25 stock price. Again, thank you very much for being with us.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.