Facing Possible Cash Crunch, Giant Real Estate Fund Limits Withdrawals
A giant real estate fund managed by the company of the billionaire investor Barry Sternlicht is limiting the amount of money that investors can redeem, in an attempt to fend off a potential cash crunch as high interest rates pummel the market for commercial properties like office buildings.
Starwood Real Estate Investment Trust, which manages about $10 billion and is one of the largest REITs around, said on Thursday that it would buy back only 1 percent of the value of the fund’s assets every quarter, down from 5 percent earlier.
Starwood said that it had chosen to tighten the limit because it was facing more withdrawals than it could meet with its cash on hand, and that it was a better option than raising money by selling properties at discounted prices. The value of commercial properties has fallen — hit both by lower occupancy since the coronavirus pandemic and by high interest rates that make real estate less affordable.
In a letter to shareholders, Mr. Sternlicht, who leads the Starwood Capital Group, and Sean Harris, the chief executive of Starwood’s REIT, said: “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.”
Any such gates tend to spook investors.
“This will have a negative effect on fund-raising,” said Kevin Gannon, chief executive of the investment bank Robert A. Stanger & Company, which follows the REIT market. “I think it will give people more pause.” He added that “no one anticipated that redemptions would stay this big this long.”
Real estate investment trusts buy and own commercial or industrial properties and generate dividends for investors. They are typically publicly traded entities. But the Starwood REIT and one created by the private equity behemoth Blackstone are privately held and instead sold by financial advisers, mostly to individual investors. Some churn is normal in the business, as investors make decisions about what to buy and sell.
