US Markets
Wednesday, June 5th, 2024 4:32 pm EDT
Key Points
- Decision to Cap Withdrawals: Barry Sternlicht, chairman and CEO of Starwood Capital Group, defended the decision to limit investor withdrawals from the Starwood Real Estate Income Trust to protect the 80% of investors who hadn’t redeemed their investments amidst mounting losses and redemption requests.
- Impact of Federal Reserve’s Rate Hikes: The $10 billion real estate fund, which invests in multifamily, industrial, and office properties, faced significant declines due to difficulties in refinancing loans caused by the Federal Reserve’s aggressive interest rate hikes.
- New Withdrawal Restrictions and Fee Waiver: On May 23, Starwood introduced new restrictions, capping monthly withdrawals at 0.33% of net asset value, down from the previous 2% limit, and waived 20% of its management fee to better manage liquidity and protect long-term investors.
Barry Sternlicht, chairman and CEO of Starwood Capital Group, defended his decision to limit investor withdrawals from his real estate fund amidst significant losses and redemption requests. Speaking on CNBC’s “Squawk Box,” Sternlicht explained that the move was necessary due to media-driven panic, with many investors wanting to exit and re-enter the fund when conditions improved. To protect the interests of the 80% of investors who hadn’t sought withdrawals, the firm decided to restrict redemptions, hoping the measure would be temporary, lasting around six months.
The $10 billion Starwood Real Estate Income Trust, which focuses on multifamily, industrial, and office properties, has faced severe declines due to the difficulty in refinancing loans following the Federal Reserve’s aggressive rate hikes. In a letter to shareholders dated May 23, Starwood announced new restrictions, capping monthly withdrawals at 0.33% of net asset value, a significant reduction from the previous 2% limit. Additionally, the firm decided to waive 20% of its management fee as part of the adjustments.
Sternlicht emphasized that the decision to implement the cap was to safeguard loyal clients who had not redeemed their investments, making up 80% of the investor base. Despite the challenges, the real estate trust, one of the largest globally, maintained $752 million in immediate liquidity as of the end of April.
Criticizing the Federal Reserve’s monetary policy as “unbelievably ineffective,” Sternlicht expressed optimism that interest rates would soon decrease. He noted that the real estate sector had been particularly hard hit by the Fed’s actions but observed that market conditions were beginning to improve, with narrowing spreads indicating a healing market and a clearer future.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/06/05/sternlicht-defends-gating-starwood-reit-withdrawals-hopes-its-a-six-month-thing-.html
