With liquidity draining, Barry Sternlicht’s Real Estate Income Trust is cracking down on withdrawal limits.
SREIT tightened the limits on how much shareholders can pull from the real estate fund, Bloomberg reported. Redemptions were previously capped at 2 percent of net asset value, but will now be capped at 0.33 percent of the net asset value each month.
Additionally, Starwood will cut its management fees as a cost-saving measure. The changes are expected to remain in place for the next six to 12 months.
“This was a very hard decision to make,” Sternlicht said in a statement. “But having managed through six major downturns over our 30-year history, we believe we are making the best decision for all shareholders.”
The trust claims the measures will maximize values for existing shareholders, saying 80 percent of its investors have never redeemed their funds.
As of the end of last month, SREIT only had $752 million in availability liquidity. That’s divided between $446 million in cash, $225 million available on a credit line and $45 million of debt securities available for sale.
With no sign the pace of redemption requests was about to slow, the trust’s management had to decide between tightening limits or selling assets, likely at a discount considering the state of the commercial market.
SREIT’s liquidity issues date back to October 2022, when redemption requests exceeded the 2 percent threshold for the first time. It managed to fulfill those requests, but failed to do so in the following month.
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Shareholders slowed down redemption requests when it appeared the Federal Reserve was poised to cut interest rates, which would benefit the commercial market. But the Fed hasn’t done so yet and may not do so for some time, roiling investors disappointed to see the value of commercial assets tank.
SREIT’s investment sectors include industrial real estate, self-storage and multifamily, which is under pressure as apartment rent growth slows or reverses.
In the first four months of the year, SREIT paid out more than $700 million in withdrawal requests, forcing the trust to pull from a line of credit. Since the start of last year, it has drawn more than $1.3 billion from that credit line.