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  • Writer's pictureRealFacts Editorial Team

Starwood Fund's Liquidity Issues Trigger Increased Withdrawals at Other REITs

Starwood Property

In the wake of Starwood Real Estate Income Trust’s (SREIT) recent decision to drastically limit redemptions, there has been a notable surge in withdrawal requests from investors in other major non-traded real estate investment trusts (REITs). This trend highlights growing concerns about liquidity in the sector, impacting investor sentiment and behavior.

Investors have been seeking to withdraw their money from these semi liquid funds since late 2022, as rising interest rates prompted many non-traded REITs to cap the amount that could be withdrawn. The pace of redemptions had been slowing, with Blackstone Real Estate Income Trust (BREIT), the largest of these funds, fulfilling all redemption requests since February. However, Starwood Capital Group's move to reduce its monthly redemption limit from 2% to 0.33% of its net asset value sparked renewed urgency among investors.

This restriction by SREIT, valued at $10 billion, has caused monthly redemption requests to surge by an average of 65% in May across other non-traded REITs, according to a study by Robert A. Stanger & Co. These REITs include Ares Industrial Real Estate Income Trust, Hines Global Income Trust, JLL Income Property Trust, and Nuveen Global Cities REIT. "Some [are] seeing requests more than doubling versus April," Stanger's Head of Research, David Inauen, told The DI Wire.

According to an article by Jarred Schenke of Bisnow, overall the sector saw investor redemptions jump from $12 billion in 2022 to $18 billion in 2023, with 2024 on track to surpass last year’s totals. Concurrently, fundraising has slowed significantly, falling from $12 billion in Q1 2022 to $1.4 billion in Q1 2024.

Despite these challenges, some REITs are leveraging the current dislocation in commercial real estate (CRE) values to their advantage. Brookfield REIT, for instance, has been active in acquisitions, purchasing a trio of properties for $150 million, including a 25-story student housing project in Atlanta for $116 million. Brookfield REIT Chief Operating Officer Dana Petitto told Bisnow, "We aim to do something that others aren’t right now, which is buy, and buy when the pricing is attractive."

Inauen noted that despite the surge in redemption requests, most funds have maintained stability and have not had to impose further redemption limits. "Despite investors actively hitting the redemption button, we estimate that all of the other top NAV REITs with monthly redemption programs answered the call by fully satisfying all redemption requests in May, in some cases exceeding the stated capacity limits of their redemption programs," he said.

For investors, these developments underscore the importance of understanding the liquidity dynamics of nontraded REITs, especially in volatile economic environments. As some REITs like Brookfield are using this period to make strategic acquisitions, there may be opportunities for investors to benefit from careful selection of funds that can capitalize on current market conditions.


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