SREIT Faces Liquidity Crunch Due to $1.3B in Redemptions

Starwood REIT faces a serious liquidity crunch due to billions in investor redemption requests, and may run out of cash by the end of 2024.
May 19, 2024
Starwood REIT faces a serious liquidity crunch
  • Starwood Real Estate Investment Trust (SREIT) faces significant liquidity challenges due to high investor redemption requests, risking running out of credit and cash by the end of 2024.
  • SREIT has drawn over $1.3 billion from its unsecured credit facility since last year, with only $225 million remaining.
  • The fund had $752 million in liquidity as of April 30, but ongoing redemptions and limited reserve replenishments pose serious risks.
Key Takeaways

Starwood Real Estate Investment Trust (SREIT), managed by Starwood Capital and overseen by Barry Sternlicht, is grappling with severe liquidity pressures as investor redemption requests continue at an unprecedented pace. According to the Financial Times and TRD, SREIT has tapped into more than $1.3 billion of its unsecured credit facility since the beginning of last year, leaving just $225 million available.

Liquidity Crisis Looms

As of April 30, SREIT’s liquidity stood at $752 million, comprising $446 million in cash, $225 million from the remaining credit line, and $45 million in debt securities available for sale. However, without additional borrowing or asset sales, these reserves may deplete before the end of the year.

Investor redemption requests have significantly strained SREIT’s liquidity. In 2023, the fund faced $2.6 billion in withdrawals, driven by concerns over real estate valuations and rising interest rates. Despite Blackstone Real Estate Income Trust (BREIT) overcoming similar issues, SREIT’s redemption requests have persisted.

Redemption Struggles

In the first quarter of 2024, investors sought to withdraw $1.3 billion, but due to SREIT’s quarterly cap of 5% of net assets, only $501 million of these requests were fulfilled on a pro-rata basis. An additional $200 million in redemptions was due at the start of May, further straining the fund’s liquidity.

SREIT’s investment portfolio includes industrial real estate, self-storage, and multifamily sectors. The latter is particularly under pressure as apartment rent growth slows or reverses amid a surge in new units across the country.

What’s Next?

To address its liquidity crisis, SREIT is considering several asset sales. According to a source cited by the Financial Times, some transactions are expected to close this month. Additionally, Starwood has announced plans to sell $1 billion worth of property through special tax-efficient transactions.

Despite these challenges, SREIT’s efforts to manage liquidity and asset sales could provide some relief. However, the fund’s net asset value has already declined by 16% from its peak in September 2022, highlighting the ongoing difficulties faced by SREIT in navigating the current real estate market environment.

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