Barry Sternlicht, chairman and CEO of Starwood Capital Group, has defended his decision to cap the amount of money investors can withdraw from his real estate fund in response to mounting losses and increasing redemption requests.
Speaking on Wednesday, Sternlicht explained that the decision was made to safeguard the interests of the majority of investors who have remained committed to the fund. “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,” he stated. “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 $10 billion Starwood Real Estate Income Trust, which invests in multifamily, industrial, and office properties, has faced significant declines due to difficulties in refinancing loans amid the Federal Reserve’s aggressive rate hikes. In light of these challenges, Sternlicht announced new restrictions on May 23, capping monthly withdrawals at 0.33% of net asset value, down from the previous 2% limit. Additionally, the firm decided to waive 20% of its management fee to further support its investors.
Sternlicht emphasized that the cap was implemented to protect loyal clients who have not redeemed their investments, which accounts for 80% of the fund’s investors. As of the end of April, the real estate trust, one of the largest in the world, maintained $752 million of immediate liquidity.
Sternlicht criticized the Federal Reserve’s monetary policy as “unbelievably ineffective,” but expressed optimism that interest rates would 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.”
Sternlicht’s move aims to stabilize the fund during turbulent times and protect the long-term interests of investors who have remained loyal despite the economic challenges. By capping withdrawals and reducing management fees, Starwood Capital Group seeks to navigate the current financial landscape while ensuring the stability and integrity of its real estate investments.
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