Barry Sternlicht’s decision to lower withdrawal limits at Starwood Real Estate Income Trust is one that may have ripple effects for at least six months.
In an interview with CNBC’s “Squawk Box” on Wednesday, the CEO said he hoped his increased cap on redemptions “is going to be a six-month thing,” according to CNBC. Sternlicht said it was a “tough decision” made “for the benefit of the 80 percent of people who’ve never redeemed.”
Sternlicht also railed against the “unbelievably ineffective” monetary policy of the Federal Reserve, something the executive has bemoaned publicly in the past as the Fed hiked interest rates to battle inflation.
Sternlicht’s comments came a couple of weeks after SREIT tightened the limits on how much shareholders can pull from the $10 billion real estate fund. Previously capped at 2 percent of net asset value, Starwood moved the goalposts to 0.33 percent of net asset value each month, and also cut its management fees.
As of the end of April, SREIT had $752 million in liquidity available, split between $446 million in cash, $225 million left on a credit line and $45 million of debt securities up for sale. The liquidity issues began in October 2022, when redemption requests exceeded the 2 percent threshold for the first time. It fulfilled those requests, but failed to do so the following month.
Shareholders slowed down redemption requests when it seemed the Federal Reserve would cut interest rates, but the Fed hasn’t done so and may not for some time, frustrating investors who are seeing commercial asset values collapsing.
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SREIT’s invests in industrial real estate, self-storage and multifamily, the latter of which is under pressure as apartment rent growth slows or reverses.
In the first four months of the year, SREIT fulfilled 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 the credit line.