If the surge in redemption requests to Starwood Real Estate Investment Trust continues, the real estate fund could run out of credit and cash by the end of the year.
Barry Sternlicht's SREIT has drawn down more than $1.3 billion from its unsecured credit lines since the beginning of last year, according to the Financial Times, which reviewed the real estate fund's most recent public filings. The fund, managed by Starwood Capital, has just $225 million remaining in its unsecured lines, even though it had never used them before last year.
Unless SREIT borrows more or sells some of its assets, it is on track to deplete its reserves by the end of the year.As of April 30, SREIT had $752 million in liquidity, split between $446 million in cash, $225 million available under its credit facility, and $45 million in bonds available for sale.
Redemption claims are a big part of what's holding SREIT back: Investors pulled $2.6 billion from the real estate fund last year as concerns about property valuations and interest rates slammed the shares of peers like Blackstone Real Estate Income Trust. But while BREIT hasn't had trouble handling redemptions, the pace of claims against Starwood has continued unabated.
This has made it difficult for SREIT to redeem: In the first quarter, investors requested to withdraw $1.3 billion from the fund, but the request was only granted for $501 million on a pro rata basis because the fund's quarterly withdrawal cap is 5% of its net assets.
A further $200 million in redemptions are scheduled for earlier this month, further eroding the fund's liquidity.
Fortunately for SREIT, liquidity may be on the way. A source told the FT that multiple asset sales are expected to close this month. Starwood may also sell other assets, having recently announced plans to sell $1 billion in real estate through a special tax-optimized deal.
SREITs' investment segments include industrial real estate, self-storage and multifamily properties, the latter of which has come under pressure as apartment rent growth has slowed or reversed amid a large supply of units across the country.
Starwood's reported net asset value is down 16% from its September 2022 peak.
— Holden Walter Warner
read more
Blackstone real estate fund reports first ever annual loss
Starwood Ranks Top in CRE Delinquency Risk by One Metric
Blackstone's real estate fund starts to rise from bottom