Starwood REIT Still Struggling With Redemption Requests

Barry Sternlicht’s Starwood Real Estate Income Trust lowered the gates on redemptions last year, but investors aren’t done trying to take money out of the property fund.

The real estate investment trust is facing roughly $850 million in redemption requests, the Wall Street Journal reported. That’s according to Robert A. Stanger & Company, an investment banking firm tracking the business.

A year ago, Starwood lowered the gates so investors could only withdraw 1 percent of the fund’s net asset value per quarter. The withdrawal limit was recently bumped up to 1.5 percent as liquidity recovered.

The redemption limit became necessary last year as liquidity dipped below $800 million. If redemptions continued at a quick clip, SREIT could’ve run out of cash, especially after it drew down most of a $1.55 billion credit line.

The withdrawal limit may be protecting the fund’s liquidity, but it’s also causing long-term problems. Investors don’t want to put money in a fund with one of the tightest redemption limits in the industry, fearful of their ability to claw it back.

SREIT’s net asset value is $8.8 billion, down 40 percent from a 2022 peak. Declining real estate values as interest rates rose and withdrawals made before the gates were lowered contributed to the drop in net asset value.

Sternlicht dismissed the possibility of fire sales, but that doesn’t mean SREIT isn’t a seller. From December to May, the fund sold $1.6 billion worth of property, according to a letter sent to stockholders. It sold a West Palm Beach shopping center for $133 million, slightly above the purchase price from three years prior.

Liquidity is up to more than $900 million, according to the shareholder letter, and former Goldman Sachs executive Nora Creedon recently took the reins as chief executive officer of the REIT. Sternlicht is maintaining a growth mindset, hoping for declining interest rates and rising property values.

As for the redemption limit, there’s precedent to break down the gates after they’re imposed. Blackstone is the most prominent example of recent years, lifting a 15-month redemption limit after a number of asset sales and a $4 billion investment courtesy of the University of California.

— Holden Walter-Warner