Barry Sternlicht Defends Restrictions On SREIT Investor Withdrawals
Starwood Capital Group CEO Barry Sternlicht on Wednesday defended the company's decision to further restrict investor withdrawals for its $10B nontraded REIT as it waits out interest rate cuts.
Sternlicht's comments came after the firm on May 23 placed new restrictions on its Starwood Real Estate Income Trust fund consisting of a monthly withdrawal cap at 0.33% of net asset value, below its previous 2% limit. It also announced cuts to its management fees.
“With all the hysteria in the media, people are saying, ‘I want to get out now and I’ll come back in later when the coast is clear.’ So we took a very tough decision,” Sternlicht said on CNBC’s Squawk Box morning show Wednesday.
“I decided that for the benefit of the 80% of people who’ve never redeemed, we would slow down redemptions. ... We hope this is going to be a six-month thing,” he added.
Sternlicht said in his letter to investors in May, when the caps were first put into place, that he hopes the measures will be active for the next six to 12 months as the firm waits out the high interest rate environment.
The nontraded REIT enforced the cap as a response to a spike in investor redemptions. The fund was already running into liquidity issues as its $1.6B credit line had only $225M left at the beginning of May, the Financial Times reported.
At the same time as its investor redemptions have spiked, new fundraising for SREIT has dropped sharply over the last two years, from $5.4B in 2022 to $335M last year to $53M in Q1, according to Robert A. Stanger & Co.
SREIT's issues might just be the start of a bigger problem for these multibillion-dollar real estate funds.
On Monday, Blackstone's $60B BREIT revealed that it saw a surge of redemption requests at the end of May, which it said was spurred by SREIT's move. Blackstone said it still fulfilled 100% of its repurchase requests last month, as it has since February, and it noted that its May requests were 70% below January 2023 levels.
“Repurchase requests for BREIT steadily declined from January 2023 until the last two weeks of May 2024 when another nonlisted REIT amended its share repurchase program to significantly reduce liquidity to its shareholders,” the REIT wrote in a June 3 letter to investors.
