No. of Recommendations: 10
I very much agree with BHPO's conclusion about STWD. Sternlicht is one of the smartest guys in commercial real estate, especially from the credit side of the market. I don't invest a lot of my funds in M-REITs, for all the obvious reasons, but I have a substantial stake in STWD. And the LNR acquisition will open up many new doors for them.

That said, the debt side of commercial real estate can be very difficult to understand, particularly when debt is sliced, diced and otherwise securitized. Leverage must be watched closely, along with maturities, credit risk, LTV ratios, etc. I don't pretend to understand a lot of STWD's investments, and have always said that this is a "leap of faith" stock - one must believe in the wisdom and appropriate conservatism of Sternlicht and his company, Starwood Capital. Finally, I would much prefer STWD as a fully independent company, rather than controlled and advised by Starwood Capital.

This last point is interesting. All things being equal, an externally-advised REIT shouldn't have the value of an internally-managed REIT. There are certainly conflicts of interest that must be dealt with carefully and responsibly. And, as we know from the CWH situation, an externally-advised structure can be abused.

However, I have owned STWD stock practically since its IPO, and have not noticed any area where I felt the STWD shareholders were getting the short end of the stick. The devil is always in the details.

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