Starwood Capital has limited redemptions from its nontraded $10 billion Starwood Real Estate Income Trust property fund as it seeks to shore up liquidity in the face of a wave of investors looking to exit.
SREIT, the nontraded trust managed by billionaire Barry Sternlicht’s Starwood Capital based in Miami Beach, Florida, told investors in an update late Thursday it would be restricting liquidity rights by more than 80%, limiting redemptions to 0.33% of its net assets a month from the up to 2% has allowed since its inception in 2018.
The restrictions are expected to last six to 12 months and are aimed at preserving liquidity and preventing forced sales into what Starwood said is a recovering market. Higher interest rates globally in the past two years has led Blackstone and other money managers to restrict redemptions as investors look to move money away from property into other areas.
SREIT said it had decided to restrict investors’ liquidity rights because it believed property markets will soon recover.
“As a result, and as a fiduciary to our stockholders, we cannot recommend being an aggressive seller of real estate assets today given what we believe to be a near-bottom market with limited transaction volumes, and our belief that the real estate markets will improve. There is plenty of “dry powder” to purchase real estate, but much of it remains on the sidelines as bid ask spreads remain elevated, the sign of a market not functioning properly.”
In the first quarter its properties reported a 7% increase in rents in what it called the “best in our competitive set” — while selling $2.8 billion in property assets to meet redemptions at values slightly below book value. The portfolio comprises Arizona apartment blocks, logistics centres in Norway and a large loan it provided to Blackstone for the acquisition of Australian hotel and casino group Crown Resorts.
Managed Portfolio
SREIT is one of the largest nontraded REITs, a commercial real estate fund that allows retail investors to own shares in a managed portfolio but places restrictions on taking out money in case there is a run to the exit door.
The $60 billion Blackstone Real Estate Income Trust is the largest of these funds and was first to limit redemptions in 2022. In February it lifted these restrictions and saw its shareholder buyback requests decline in March. Share buyback requests from stockholders were down 17% from February and down 85% from a year earlier, the REIT told shareholders. It was the lowest level of requests in 23 months.
As reported, those Blackstone results signal that nontraded REITs are coming to a turning point when their net asset values may again rise.
In the United Kingdom, so-called open-ended property funds with daily trading have become increasingly under fire because of the liquidity mismatch between redemption requests and the ability to quickly sell the underlying real estate assets.
SREIT has faced heavy redemption requests. Earlier this month, the Financial Times reported that SREIT had drawn down more than $1.3 billion of its $1.55 billion credit facility beginning in 2023 as it used much of its available liquidity to pay redemptions, leaving it short on cash.
The new limits will keep quarterly redemptions to about $100 million.