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Sternlicht's Starwood Real Estate Fund Gates Redemptions
Commercial real estate delinquency rates are surging, reaching a multi-year high, particularly in the lodging sector. This has led to significant redemption requests for private credit funds, and now this pressure is extending to commercial real estate. Starwood Capital Group is temporarily suspending redemptions from its $22 billion real estate fund for retail investors. The fund's manager is seeking to prevent an asset flight due to concerns about a rapid recovery in the commercial real estate market. This suspension follows a strategic review and a reduction in annualized distributions for the fund. The primary reason cited for this action is the sustained high interest rate environment. The fund had already restricted investor liquidity significantly two years prior. The CEO acknowledged this decision may be frustrating but aims to preserve better outcomes as market conditions improve. He clarified that the issue is not the real estate itself but the pressure from elevated redemption requests triggered by rising interest rates. The fund, which owns nearly 600 properties, has struggled since interest rates began increasing four years ago. Starwood plans to reintroduce liquidity once it can be done sustainably, with current exceptions for death, disability, or very small account balances. The CEO expressed optimism for a future with lower interest rates, attributing this anticipation to various geopolitical and economic factors. He also emphasized his significant personal investment in the fund aligns his interests with those of the shareholders. Last month, a hedge fund attempted to purchase a portion of the fund's shares at a discount, but only acquired a small amount. Starwood had previously limited redemptions by utilizing its credit facility instead of selling assets. The fund was launched in 2018 to provide retail investors access to commercial real estate, but the market shift in 2022 due to rising interest rates has impacted its liquidity. Similar private credit funds have also faced withdrawal pressures and redemption caps due to market concerns. Starwood is a major owner of multifamily apartments across the Sunbelt region of the United States. The CEO has a history of success in distressed real estate and previously criticized the Federal Reserve for a delayed response to inflation.
