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Sternlicht's $10B SREIT Facing Liquidity Crunch As Redemptions Pile Up

Investor redemption requests are mounting for Starwood's SREIT.

Starwood Capital Group’s $10B nontraded real estate investment trust has nearly exhausted its roughly $1.6B line of credit as it seeks to pay investors looking to cash out their shares.

Starwood Real Estate Income Trust, known as SREIT, has just $225M left on its credit line since it began tapping into it last year, threatening to place the privately traded REIT in a position to be out of credit and cash by the second half of this year, The Financial Times reported.

SREIT began limiting investor redemption requests in 2022, and it has continued to do so in 2023 and this year as spiking interest rates wreaked havoc on commercial property valuations and investors in the semiliquid fund sought to remove their capital. 

The vast majority of the fund's assets are multifamily properties, and the U.S. apartment industry has experienced a slowdown in rent hikes and demand and burgeoning growth in supply. 

In the first quarter, SREIT repurchased $514M of the $1.3B in shares investors sought to sell, according to a regulatory filing. Investors then asked to pull out $400M in April, of which SREIT granted 37%, it reported this week.

Only a quarter of redemption requests were satisfied, leaving SREIT with $446M in cash on hand, a $225M credit line and $45M of debt securities available for sale. SREIT was set to face an additional $200M in redemptions on May 1, the FT reported.

Starwood didn't respond to Bisnow's request for comment.

SREIT is one of the biggest nontraded REITs, a new type of commercial real estate fundraising vehicle that allows main street investors to own shares in a managed portfolio but restricts their ability to pull out too much money in the case of a run.

The $60B Blackstone Real Estate Income Trust is by far the largest of these funds. It was among the first to limit redemptions in 2022 and did so every month until February, when it allowed investors to redeem all of the $961M in share repurchases they requested. Investors have cashed out of more than $15B in BREIT shares since it first limited redemptions. 

The liquidity crunch may force SREIT to begin selling assets to raise cash, a move that a source familiar with the fund said would happen later this month, according to the FT. It sold $77M worth of assets in the first quarter, according to the filing, and has announced plans to sell $1B more, the FT reported.

Starwood Capital is set to sell roughly $1.6B of a 23-property, 7,300-unit apartment portfolio across six states to Brookfield, Green Street News reported.

Starwood Capital CEO Barry Sternlicht, who is also the CEO of SREIT, said earlier this month at the Milken Institute annual conference in Los Angeles that “multifamily [is] now in the crosshairs” of distress because of the pressure regional banks are facing with higher interest rates, The Real Deal reported.