Starwood REIT Quickly Depleting Liquidity

If the hot pace of redemption requests keeps up for Starwood Real Estate Investment Trust, the property fund may run out of credit and cash by the end of the year.

Barry Sternlicht’s SREIT has drawn more than $1.3 billion of its unsecured credit facility since the start of last year, according to the Financial Times, which looked at the property fund’s latest public filings. The fund, managed by Starwood Capital, only has $225 million left in the unsecured credit facility, despite having never tapped it before last year.

If SREIT doesn’t borrow more or sell some of its assets, it’s on pace to run out of its reserves before the year ends. As of April 30, SREIT had $752 million in liquidity, split between $446 million in cash, the $225 million available on the credit line and $45 million of debt securities available for sale.

Redemption requests are a major culprit hampering SREIT. Last year, investors withdrew $2.6 billion from the property fund as fears of real estate valuations and interest rates dragged down counterparts, such as Blackstone Real Estate Income Trust. But while BREIT is no longer having issues fulfilling redemptions, the pace of requests has continued unabandoned for Starwood.

That’s led to redemption struggles for SREIT. In the first quarter, investors requested to pull $1.3 billion from the fund, but only $501 million of those requests were honored on a pro-rata basis due to the fund’s quarterly withdrawal cap of 5 percent of net assets.

Another $200 million in redemptions was due to be met at the start of this month, further hampering the fund’s liquidity.

Fortunately for SREIT, liquidity could be coming down the pike soon. A source told FT that several asset sales are expected to close this month. Starwood may also sell other assets and recently announce plans to sell $1 billion of property through special tax-efficient transactions.

SREIT’s investment sectors include industrial real estate, self-storage and multifamily, the latter of which is under pressure as apartment rent growth slows or reverses amid the delivery of a large number of units across the country.

Starwood’s declared net asset value is down 16 percent from its September 2022 peak.

— Holden Walter-Warner