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Starwood Fund's Liquidity Issues Spark Spike In Withdrawals At Other REITs

Nine of the 10 largest nontraded real estate investment trusts have seen a huge jump in investors seeking to pull out their money following Starwood Real Estate Income Trust’s move last month to sharply limit redemptions.


Investors in these semiliquid funds have been looking to withdraw their money since late 2022 as interest rates were spiking, leading many of the nontraded REITs to limit how much can be taken out.

The pace of those redemptions had slowed — Blackstone Real Estate Income Trust, the largest of these funds, has fulfilled all of its redemptions since February. But when Starwood Capital Group’s $10B SREIT tightened the limit on the amount of redemptions it would pay out to 0.33% of its net asset value per month, down from 2%, to preserve its liquidity, it started another rush to withdraw.

Nontraded REITs such as BREIT, Ares Industrial Real Estate Income TrustHines Global Income Trust, JLL Income Property Trust and Nuveen Global Cities REIT experienced monthly redemption requests that shot up an average of 65% in May, according to a study by Robert A. Stanger & Co., which tracks nontraded REITs.

“Some [are] seeing requests more than doubling versus April,” Stanger Head of Research David Inauen told The DI Wire.

Other REITs that were part of the study included Ares Real Estate Income Trust, Brookfield Real Estate Income Trust, FS Credit Real Estate Income Trust and Starwood’s REIT.

Overall, nontraded REITs saw investor redemptions jump from $12B in 2022 to $18B in 2023, and redemptions are on pace to surpass last year’s totals in 2024, according to Stanger. At the same time, fundraising has slowed, falling from $12B in the first quarter of 2022 to $1.4B in Q1 2024.

Despite the headwinds facing nontraded REITs, some are taking advantage of the dislocation in CRE values. The $1B Brookfield REIT purchased a trio of properties for $150M, including a 25-story student housing project in Atlanta for $116M. Brookfield REIT Chief Operating Officer Dana Petitto told Bisnow the firm aims to “do something that others aren’t right now, which is buy, and buy when the pricing is attractive.”

Despite the surge in withdrawal requests, Inauen said that most funds are stable and haven't had to further limit redemptions, as SREIT did.

“Despite investors actively hitting the redemption button, we estimate that all of the other top NAV REITs with monthly redemption programs answered the call by fully satisfying all redemption requests in May, in some cases exceeding the stated capacity limits of their redemption programs,” he told DI Wire.