Starwood REIT Limits Investor Withdrawals After a Surge in Requests

Starwood has become the second nontraded real estate investment trust to limit investor withdrawals after a surge in November requests exceeded monthly limits.

In a letter to its investors that was forwarded to Barron’s, the $15B Starwood Real Estate Income Trust, also known as SREIT, said it fulfilled 63% of investor redemption requests in November after the repurchase requests exceeded a 2% limit, reaching 3.2% of net asset value (VAV).

Last week, Blackstone, the largest nontraded REIT, also disclosed that it was limiting redemptions to investors to tamp down a stampede to the exits. Like Blackstone, SREIT also has a quarterly limit on redemptions of 5% NAV.

Starwood told investors that any redemption requests that weren’t fulfilled in November would have to be submitted again in December. The withdrawal limits are triggered in order to prevent the fund from having to make forced sales.

“These limits are designed to protect investors and the long-term-health of the vehicle, and ultimately to maximize shareholder value,” SREIT said in the letter to investors.

According to Barron’s, investors are seeking to liquefy their nontraded holdings, which have far outperformed publicly traded REITs.

Last week, Blackstone said it was limiting withdrawals from its $69B real estate investment fund after a surge of redemption requests from investors seeking to cash out breached the REIT’s quarterly repurchase limit.

The stampede of investors seeking to liquefy their assets at two of the largest private equity investment funds is an ominous sign that economic headwinds are building in commercial property markets.

Last week, BREIT said it received $1.8B in redemption requests, or about 2.7% of its net asset value, and has received redemption requests in November and December exceeding the quarterly limit.

Blackstone allowed investors to withdraw $1.3B in November, or just 43% of the redemption requests it received. Blackstone would allow investors to redeem just 0.3% of the fund’s net assets this month, the letter said.

“If BREIT receives elevated repurchase requests in the first quarter of 2023, BREIT intends to fulfill repurchases at the 2% of NAV monthly limit, subject to the 5% of NAV quarterly limit,” BREIT’s letter said.

SREIT, like BREIT, has the bulk of its assets in multifamily apartment complexes, followed by warehouses. These have been two of the strongest-performing sectors in the REIT industry in recent years. SREIT’s year-to-date return through October was 10.2% on one of its share classes, comparable to the return of about 9% for BREIT.