Starwood IPO may be largest of the year

Who thought there was big money to be made in investing in commercial mortgage-backed securities, especially those being sold by the U.S. government under its public-private investment partnership (PPIP)? There has not been much interest in the federal program from established financial firms. It is hard to say why. They may be concerned about the increase in mortgage defaults, or the scrutiny that comes from doing business with Uncle Sam.

Starwood Property Trust, however, thinks that there will be huge profits in the federal program and has raised money through an IPO. As Reuters reports, "Starwood Property, a unit of private equity firm Starwood Capital Group, sold 40.5 million shares, raising $810 million, one of the deal's underwriters said." The demand for the share was apparently tremendous. The stock will start trading today under the symbol STWD.

The Starwood gamble is clearly a bet that property values, particularly those of commercial assets, will not keep falling beyond next year. The $810 million is has raised is a lot of dry powder. But timing is everything. If the property market goes through its own double-dip recession, Starwood may not do very well.

Douglas A. McIntyre is an editor at 24/7 Wall St.