Barry Sternlicht, the chairman and CEO of Starwood Capital Group, recently faced criticism for capping how much money investors could pull from his real estate fund. This decision came in response to mounting losses and redemption requests that were driven by hysteria in the media. Sternlicht defended his tough decision by stating that it was made to benefit the majority of investors who had not yet redeemed their shares.
The $10 billion Starwood Real Estate Income Trust, which focuses on multifamily, industrial, and office properties, experienced significant declines due to challenges in refinancing loans amidst the Federal Reserve’s aggressive rate hikes. In response to these difficulties, Sternlicht introduced new restrictions in May, limiting monthly withdrawals to 0.33% of net asset value, down from the previous 2% cap. Additionally, the firm decided to waive 20% of its management fee to provide relief to investors.
Sternlicht emphasized that the decision to cap investor withdrawals was aimed at protecting loyal clients who had remained invested in the trust. According to Sternlicht’s letter to shareholders, 80% of investors had not redeemed their shares, and the restrictions were intended to safeguard their interests. Despite facing challenges, the real estate trust maintained $752 million of immediate liquidity as of April.
In his comments, Sternlicht criticized the Federal Reserve’s monetary policy as “unbelievably ineffective,” attributing the challenges faced by the real estate asset class to the unintended consequences of their actions. While acknowledging the difficulties brought about by the current environment, Sternlicht expressed optimism that interest rates would eventually decrease, providing relief to investors in the real estate market.
Despite the challenges and uncertainties in the real estate market, Sternlicht remains committed to safeguarding the interests of investors in the Starwood Real Estate Income Trust. By implementing restrictions on withdrawals and reducing management fees, Sternlicht aims to weather the current storm and position the trust for future success. As market conditions evolve and the Federal Reserve adjusts its policies, Sternlicht’s decision-making will continue to be guided by the best interests of investors.