Starwood's $10B Property Fund Sharply Limits Withdrawals

As liquidity slows and investors continue to ring alarm bells, Starwood Capital Group's $10B nontraded REIT has placed new restrictions on the money shareholders can pull out.

The new restrictions consist of a monthly withdrawal cap at 0.33% of net asset value, well below its previous 2% limit, and the firm will cut its management fees. The firm expects these measures to stay in place for the Starwood Real Estate Income Trust for six to 12 months, Bloomberg reported.

Starwood CEO Barry Sternlicht ensured investors that the restrictions were the best decision for the fund as it continues to wait out the difficult market.

"By not selling a meaningful number of real estate assets into this market and temporarily amending the share repurchase plan, we believe we are making the best decision to protect and maximize value for SREIT’s existing stockholders," Sternlicht wrote in a letter Thursday.

Sternlicht said that approximately 80% of SREIT's stockholders, or 45,000 investors, have never requested redemptions. He said requests were down from January 2023 but are still above the monthly and quarterly limits.

But sentiment around interest rates has drastically changed since the beginning of the year as inflation has pushed back the market's expectations for when the Fed will begin cutting rates. 

Earlier this month, the nontraded REIT's problems became more clear when the Financial Times reported that its $1.6B line of credit had only $225M left. 

The fund began limiting redemptions at the start of 2022 as interest rates began spiking.

Other nontraded REITs have also run into issues with investors looking to pull money out. The $60B Blackstone Real Estate Income Trust was one of the first to limit redemptions in 2022. However, in February it allowed investors to repurchase all $961M of the share requests.