Starwood set to launch distress investment fund

Barry Sternlicht’s firm in preliminary talks with investors

Starwood Capital Group CEO Barry Sternlicht (Getty)
Starwood Capital Group CEO Barry Sternlicht (Getty)

Starwood Capital Group CEO Barry Sternlicht said last week his real estate investment trust was “foaming at the mouth” to capitalize on distress in commercial real estate. An opportunistic real estate fund may be the ticket.

The firm is in preliminary talks with investors regarding the launch of an opportunistic real estate fund, people with knowledge of the matter told Bloomberg. The vehicle hasn’t formally launched and a spokesperson for the company didn’t comment on the report.

Starwood’s most recent distress fund closed two years ago, counting more than $10 billion in commitments. Investors included the Teachers’ Retirement System of the State of Illinois, Teacher Retirement System of Texas and the South Dakota Retirement System.

“We are going to get a front row seat to trillions of real estate that will have to be restructured and hopefully will continue to build even a bigger book,” Sternlicht said in the firm’s second quarter earnings call. 

Distress wouldn’t be hard to find for any Starwood vehicle, as it’s popping up everywhere one looks. Property values have fallen as interest rates have spiked, and more defaults are likely coming as trillions of dollars of debt are set to mature in the commercial sector in the next couple of years.

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During last week’s earnings call, Sternlicht said his firm was taking a “conservative strategy” as it navigates a messy market. He also didn’t express the same confidence as others regarding the country’s hopes of dodging a full-blown recession.

Starwood’s REIT reported $168.8 million in earnings in the second quarter, or 54 cents per share, marking a 20 percent decline year-over-year. The REIT’s revenue was $515.7 million, a 58 percent increase.

Other companies are also looking to capitalize on distress in commercial real estate with funds of their own. This year, Arnaud Karsenti’s 13th Floor Investments launched a $300 million fund targeting growth markets nationwide and distressed opportunities in South Florida and beyond.

Holden Walter-Warner