- Starwood REIT sold a 41.5% interest in a 120-property affordable housing portfolio to Apollo for $1.02B.
- The deal gives Starwood operational control while providing guaranteed annual yields to Apollo, with a capped IRR of 7% if repurchased between years five and ten.
- The transaction aims to shore up liquidity after Starwood suspended most redemptions and trimmed its distribution, highlighting challenges facing nontraded REITs.
Liquidity Pressures Shape Starwood’s Strategy
Starwood Real Estate Income Trust (SREIT) has faced liquidity pressure since suspending most redemptions and cutting its Class I distribution in April. According to AltsWire, CEO Barry Sternlicht said SREIT will pursue strategic capital raises to strengthen liquidity and protect shareholder returns.
This strategy has become more common as nontraded REITs face heavy redemption requests, higher interest rates, and weaker fundraising. The Apollo joint venture also highlights the growing use of recapitalizations and minority stake sales across large retail-focused REITs.
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The Details
Apollo Global Management affiliates acquired a 41.5% interest in SREIT’s roughly 120-property affordable housing portfolio for $1.02B, according to the company’s August 4 press release. The portfolio sits in a Delaware limited liability company jointly owned by both firms.
SREIT retains a 58.5% equity stake and full operational and asset management control. It will continue consolidating the entity for financial reporting. Apollo’s investment qualifies as a redeemable noncontrolling interest, so neither company recognized a gain or loss. SREIT will use most proceeds to reduce its credit facility and strengthen its balance sheet.
Structured Yield Guarantees Raise Stakes
The joint venture includes detailed structured finance provisions. SREIT guarantees Apollo an increasing minimum yield on its investment. It also holds an option to repurchase Apollo’s stake between years five and ten. The purchase price must deliver Apollo a capped 7% internal rate of return.
If SREIT does not exercise that option on time, its payment obligations increase. Those obligations include higher minimum yields and make-whole payments. If SREIT cannot meet those commitments, Apollo could gain certain governance rights over the venture’s assets. That outcome would limit SREIT’s flexibility to refinance or sell properties. The structure adds long-term risk to the company’s liquidity strategy.
Why It Matters
This transaction ranks among the largest affordable housing recapitalizations of 2026. It also highlights the financial pressure facing nontraded REITs. SREIT launched in 2017 and quickly built a large portfolio. However, like Blackstone REIT, it has faced persistent redemption requests since interest rates began rising. Those pressures intensified after investors sought roughly $1.3B in withdrawals, forcing the trust to tighten redemption limits before pursuing new liquidity solutions.
Bloomberg reported that the number of nontraded REITs limiting redemptions doubled during 2025 as liquidity mismatches spread. SREIT accepted guaranteed minimum returns, capped IRRs, and potential governance concessions to secure liquidity. Those terms show how expensive recapitalizations have become.
Other major managers will likely study this transaction closely. The Starwood-Apollo structure could influence future recapitalizations across the nontraded REIT sector. Meanwhile, the deal also reflects continued investor demand for affordable housing despite higher capital costs.
Banks supporting the transaction include Citibank, Barclays, Wells Fargo, Morgan Stanley, Deutsche Bank, JPMorgan, Bank of America, and Natixis. Paul, Weiss and Centerview Partners served among the legal and financial advisers, reflecting the transaction’s complexity.
What’s Next
SREIT plans to use most sale proceeds to reduce outstanding credit lines and support remaining redemption requests. The company must now improve portfolio performance while meeting its yield guarantees. It must also prepare for a potential future buyout of Apollo’s stake.
Market participants expect more nontraded REITs to pursue similar joint ventures and structured stake sales. Redemption pressure, elevated interest rates, and tighter liquidity continue shaping the sector. This venture’s performance will provide an important test. Investors will watch whether SREIT exercises its buyout option or ultimately gives Apollo greater governance rights.
