Starwood, Like Blackstone, Limits Redemptions From Nontraded REIT

Starwood Capital Chairman Barry Sternlicht speaking at a Bisnow event in 2018.
Bisnow/Jon Banister
Starwood Capital Chairman Barry Sternlicht Speaks At A Bisnow Event In 2018.

Starwood Real Estate Income Trust is the second giant nontraded real estate investment trust to cut off investors trying to pull their money out in the past week.

The investment vehicle known as SREIT, which is managed by Starwood Capital  and chaired by Starwood CEO Barry Sternlicht, refused to repurchase shares of some investors in November after redemption requests reached 3.2% of the REIT’s net asset value, Barron’s reports.

SREIT, which has been among the most active investors in commercial real estate, has more than $125B in assets under management, according to Barron’s. SREIT is the second-largest nontraded REIT, behind Blackstone Real Estate Income Trust.

Last week, BREIT also halted investor redemptions last week after it witnessed a burst in repurchase requests and had to prevent “a liquidity mismatch,” Bloomberg reported. The limits on redemptions are in place to prevent the funds from being forced to sell assets.

BREIT owns $69B in real estate. Both nontraded REITs limit withdrawal requests to 2% of their net asset value per month, Barron’s reported.

SREIT and BREIT have outperformed the publicly traded REIT market, The Wall Street Journal reported. Publicly traded REITs' shares are down 26% this year on average, according to MSCI US REIT Index. At the same time, some nontraded REITs are returning 10% even as interest rates have quickly risen and sectors like office experience rising vacancies, the WSJ reported.

Nontraded REITs raise money through individual investors, and their portfolios are valued monthly by the funds’ sponsors and appraisers.

While all nontraded REITs have withdrawal limits to prevent managers from being forced to sell off some of their holdings to satisfy redemptions, Barron’s reported that REIT operators risk rattling investor nerves when closing the gate doors.

“These limits are designed to protect existing investors and the long-term health of the vehicle, and ultimately to maximize shareholder value,” SREIT executives wrote to investors in a letter obtained by Barron’s.

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