iStar Financial is a real estate investment trust focused on commercial real estate. The company provides secured and unsecured loans, debt, and lease financing to commercial real estate owners. iStar focuses on the top tier of the commercial real estate market and doesn't borrow money to make investments, which means iStar is less risky than its competitors, which depend on borrowing to acquire properties - which inflates either profits or losses depending on whether investments go well.

iStar's capital structure subjects it to interest rate risk, since an overall drop in interest rates will translate into lower revenues from the loans iStar makes to real estate owners. As a REIT, the company faces competition from almost 300 other such vehicles throughout the United States, as well as investment and commercial banks and asset managers.

Business Overview

iStar's lending business accounts for 50% of the company's portfolio; long-term debt, which has longer maturities, accounts for 13%. The leasing business, which provides capital to customers leasing to credit-worthy tenants, makes up 32% of assets. Risk of default on these obligations is minimized by investing only in properties with long-term leases that are used as headquarters or distribution facilities. Both loans and lease financing can range from $20-$150 million.

Business & Financial Metrics[1]

In 2009, SFI incurred a net loss of $769.8 million on revenues of $893.3 million. This represents a 323.5% increase in net loss and a 34.0% decrease in total revenues from 2008, when the company lost $181.8 million on $1.35 billion in revenues.

Business Segments

SFI has two reportable business segments:

  • Real Estate Lending (63.8% of total revenue):[2] This segment issues real estate loans and holds real estate for investment.[3]
  • Corporate Tenant Leasing (34.3% of total revenue):[2] This segment originates Corporate Tenant Leasing transactions in which SFI buys commercial property from owners and leases it back to them - this practice grants businesses more capital to invest in their core businesses.[4]


Trends & Forces

* iStar Depends on Leverage, Subjecting it to Volatile Interest Rates and Credit Markets: To maintain its REIT structure, iStar must pay out at least 90% of earnings to shareholders (100% to completely avoid taxation.) [5] As a result, the company must continuously issue debt, subjecting it to two risks: higher interest rates in expansionary periods and difficulty securing funding during periods of tight credit.[6] iStar attempts to manage the first risk by matching variable interest rate assets with similar liabilities. So if, for instance, the company must pay a variable rate on a certain portion of its debt, it will make a similar amount of loans that bring in variable payments.[7] iStar depends on its credit rating to ensure financing even when liquidity in the capital markets is low.

* The Fremont Portfolio Acquisition Increases Exposure to the Condominium Market: A large part of Fremont's real estate portfolio, in which iStar acquired a 30% interest, consists of loans for the construction of condominiums. Current credit conditions have made it substantially harder to obtain a single-family residential mortgage. If families cannot get mortgages, they will not purchase condominium units. This means that the construction companies borrowing from iStar and Fremont won't be able to repay their loans.


iStar's most direct competition includes other REITs, which manage portfolios of a variety of real estate assets and compete for the same capital from investors seeking exposure to the real estate sector. Some of these include:

  • Vornado Realty Trust (VNO): Like iStar, Vornado Realty Trust invests primarily in commercial real estate, protecting it from downturns in the residential real estate market. Vornado's properties typically have higher occupancy rates than the market average, an advantage in securing favorable financing. 81% of Vornado's assets are located in the NY and DC metropolitan areas. [8]
  • Annaly Capital Management (NLY): Annaly holds a portfolio of US residential mortgage-backed securities, earning income from the difference between the return on the securities and the cost of purchasing them. A "barbell" strategy balances fixed and variable rate investments to ensure positive returns whether Interest Rates rise or fall. Annaly uses leverage, or investing borrowed money, to deliver higher returns, which raises the risk of its portfolio. [9]
  • Redwood Trust (RWT): Redwood Trust invests in residential, and, to a lesser extent, commercial real estate loans, either directly buying jumbo loans from banks or "credit-enhancing" (guaranteeing) loans which are securitized and sold in the capital markets. The company owns $8 billion of loans and credit-enhances $212 billion. By guaranteeing these mortgage-backed securities, Redwood subjects itself to the risks of the residential housing market.[10]
  • LNR Capital: Spun off from LNR Property in 2005, LNR Capital is a REIT focusing on several sectors of real estate finance. Its portfolio includes securities backed by commercial and residential real estate, as well as Collateralized debt obligations and real estate loans. LNR is private, which gives it less access to the capital markets than public firms such as iStar.[11] Plans for an IPO were canceled in August 2007, reflecting the effect of the subprime mortgage meltdown on the company.[12]

iStar differentiates itself from competitors by focusing exclusively on the top 5-10% of the commercial real estate market. Because the company is an on-balance sheet lender, unlike many other REITs, it can offer a high level of flexibility when arranging financing for customers. iStar is also more conservative than many of its competitors, employing less leverage. [13]


  1. SFI 2009 10-K pg. 28  
  2. 2.0 2.1 2.2 SFI 2009 10-K pg. 107  
  3. SFI 2009 10-K pg. 7  
  4. SFI 2009 10-K pg. 9  
  5. What is a REIT?
  6. iStar Financial 2006 10-K Item 1 - Business p. 22
  7. iStar Financial 2006 10-K Item 1 - Business p. 7
  8. Vornado Corporate Website
  9. Corporate Website
  10. Redwood Corporate Site
  11. Hoovers Corporate Profile
  12. LNR Capital withdraws IPO plans with US SEC
  13. Seeking Alpha: iStar
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