Barry Sternlicht, the chairman and CEO of Starwood Capital Group, recently made a difficult decision regarding his real estate fund amidst mounting losses and redemption requests. In a recent interview on CNBC’s “Squawk Box,” Sternlicht explained the rationale behind capping the amount of money investors could pull out of the fund. He cited the growing hysteria in the media, with investors wanting to exit the fund in the short term and potentially return when market conditions improve.
Sternlicht decided to slow down redemptions in order to protect the interests of the majority of investors who have remained loyal to the fund and have not sought to withdraw their investments. By limiting monthly withdrawals to 0.33% of net asset value, down from the previous 2% limit, Sternlicht aimed to safeguard the fund’s stability and liquidity. Additionally, the firm waived 20% of its management fee to further support investors during this challenging period.
The Starwood Real Estate Income Trust, a $10 billion fund focusing on multifamily, industrial, and office properties, has faced significant declines due to challenges in refinancing loans amidst the Federal Reserve’s aggressive rate hikes. Sternlicht expressed concerns about the Fed’s monetary policy, labeling it as “unbelievably ineffective.” However, he remains optimistic that interest rates will eventually decrease, benefiting the real estate asset class in the long run.
Despite the current difficulties faced by the real estate fund and the broader market conditions, Sternlicht is hopeful that these challenges are temporary. He emphasized that the decision to limit redemptions was made with the best interests of the investors in mind, particularly those who have shown loyalty and commitment to the fund. With $752 million in immediate liquidity as of the end of April, the fund remains well-positioned to weather the storm and emerge stronger once market conditions stabilize.
Barry Sternlicht’s tough decision to cap withdrawals from his real estate fund reflects a strategic move to protect the majority of investors and ensure the fund’s long-term stability. While challenges persist in the market, Sternlicht remains confident in the resilience of the real estate asset class and expects a positive outcome in the future.