Barry Sternlicht, the chairman and CEO of Starwood Capital Group, recently defended his decision to place restrictions on how much money investors could withdraw from his real estate fund. Speaking at the Milken Conference 2024 Global Conference Sessions in Beverly Hills, California, Sternlicht explained his rationale for capping withdrawals amid increasing losses and redemption requests.
During an interview on CNBC’s “Squawk Box,” Sternlicht addressed the media frenzy surrounding the fund’s performance, stating that many investors wanted to exit their positions and return when conditions were more favorable. In response to this trend, Sternlicht made the difficult decision to slow down redemptions in order to protect the interests of the 80% of investors who had not redeemed their shares.
The $10 billion Starwood Real Estate Income Trust, which focuses on multifamily, industrial, and office properties, has faced significant challenges due to declining values and difficulties in refinancing loans following the Federal Reserve’s aggressive rate hikes. To address these issues, Starwood introduced new restrictions that limit monthly withdrawals to 0.33% of net asset value, down from the previous 2% limit. Additionally, the firm decided to waive 20% of its management fee in an effort to support investors during this challenging period.
Sternlicht emphasized that the decision to implement these restrictions was driven by a desire to protect loyal clients who had remained invested in the fund. He highlighted that the real estate trust, which is among the largest in the world, maintained $752 million in immediate liquidity as of the end of April, providing a solid financial position to weather the current market conditions.
While Sternlicht criticized the Federal Reserve’s monetary policy as “unbelievably ineffective,” he expressed optimism that interest rates would decline in the near future. He noted that the real estate asset class had been significantly impacted by the Fed’s actions, but he believed that improving market conditions and narrowing spreads indicated a positive outlook for the future.
In conclusion, Sternlicht’s decision to defend the gating of Starwood REIT withdrawals reflects his commitment to protecting the interests of long-term investors in the face of challenging market conditions. Despite the current difficulties, Sternlicht remains hopeful that the real estate market will recover as interest rates adjust and market conditions stabilize.