Investors plan to pull millions from a prominent commercial real estate fund as it slowly loosens an industry-rocking retrieval cap implemented last year and sells off property to handle a pile of requests.

Starwood Capital Group has increased the limit on quarterly redemptions from its Starwood Real Estate Income Trust from 1% to 1.5% of the fund’s net asset value.

It also slightly increased share repurchases from 0.33% to 0.5% of NAV, according to a filing obtained by Bloomberg. That figure previously sat at 2% before the cap was implemented in May 2024.

The cap on withdrawals went into effect last spring when a wave of investors tried to pull money from SREIT as high interest rates froze up CRE transactions. Now that Starwood is loosening its grip somewhat, shareholders are trying to withdraw $850M, investment firm Robert A. Stanger & Co. told The Wall Street Journal.

Starwood CEO Barry Sternlicht has argued that his decision to impose withdrawal limits on SREIT kept the firm from having to sell off real estate at rock-bottom prices.

“We’re not going to have fire sales,” he told the WSJ.

Even so, SREIT has been selling off properties to whittle down a mountain of redemption requests, unloading $1.6B in real estate between December and May, according to a letter to stockholders provided to Bisnow by SREIT.

“In light of renewed market volatility and tariff-related uncertainty, we're approaching additional asset sales with caution, prioritizing the retention of our highest-quality assets,” Sternlicht said in the letter.

“However, given our strong asset sales and progress towards improving liquidity to date, we believe it is important to take a positive step toward our goal of reinstating full liquidity for stockholders seeking redemptions.”

The withdrawal restrictions, which the WSJ characterized as the tightest in the industry, had a big impact on SREIT’s value. Its NAV now sits at $8.8B, down 40% from its peak in 2022.

The SREIT restrictions led a wave of investors to pull money from similar funds last summer. Some of those firms went beyond their redemption caps in an effort to maintain shareholder confidence.

Investors requested around $806M worth of withdrawals from Blackstone Real Estate Income Trust in June 2024, pushing second-quarter withdrawals above 5% of its stated quarterly limit.

Blackstone executives attributed the surge in May redemption requests to an unnamed nontraded REIT that limited redemptions that month.

“Blackstone basically, not naming Starwood by name, blamed Starwood for a temporary surge in their own redemptions,” Stranger Research Group Head of Research David Inauen told Bisnow at the time.

SREIT held $22.6B worth of assets as of April 30, according to the fund’s website. Of that, 47% was parked in market-rate apartments while another 23% was invested in affordable housing.

Ninety-one percent of the REIT’s assets are in the U.S., with 59% of them in the South.