Sternlicht defends gating Starwood REIT withdrawals, hopes it will be a ‘six-month thing’ as rates fall

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Barry Sternlicht, chairman and CEO of Starwood Capital Group, speaks at the Milken Conference 2024 Global Conference Sessions at The Beverly Hilton in Beverly Hills, California, on May 7, 2024.
David Swanson | Reuters

Barry Sternlicht, Starwood Capital Group chairman and CEO, defended his decision to cap how much money investors could pull from his real estate fund amid mounting losses and redemption requests.

“With all the hysteria in the media, people are saying, ‘I want to get out now and I’ll come back in later when the coast is clear.’ So we took a very tough decision,” Sternlicht said on CNBC’s “Squawk Box” Wednesday. “I decided that for the benefit of the 80% of people who’ve never redeemed we would slow down redemptions. … We hope this is going to be a six-month thing.”

The investor’s $10 billion Starwood Real Estate Income Trust, which invests in multifamily, industrial and office properties, has suffered from steep declines as it became difficult to refinance loans in light of the Federal Reserve’s aggressive rate hikes.

In a letter to shareholders on May 23, Starwood introduced new restrictions that cap monthly withdrawals at 0.33% of net asset value, compared with the previous 2% limit. Meanwhile, the firm also decided to waive 20% of its management fee.

Sternlicht said he decided to implement the cap to protect loyal clients who never redeemed, which represents 80% of his investors, according to the letter.

The firm said the real estate trust, one of the largest in the world, maintained $752 million of immediate liquidity as of the end of April.

Sternlicht called the Fed’s monetary policy “unbelievably ineffective,” but he believes interest rates will come down soon.

“The real estate asset class is probably the biggest victim of the unintended consequence of his actions,” he said. “The spreads are coming in, which means the markets are healing, the future’s getting clearer.”

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