Barry Sternlicht, the chairman and CEO of Starwood Capital Group, recently made a bold decision in response to mounting losses and redemption requests from investors in his real estate fund. Despite facing criticism, Sternlicht defended his choice to limit the amount of money investors could withdraw from his fund. In an interview on CNBC’s “Squawk Box,” Sternlicht explained that he made this decision to protect the interests of the 80% of investors who had not redeemed their investments in the fund.
The $10 billion Starwood Real Estate Income Trust, which focuses on investments in multifamily, industrial, and office properties, has been facing significant challenges in light of the Federal Reserve’s aggressive rate hikes. This has led to steep declines in the fund’s value, making it difficult to refinance loans. In response to these challenges, Sternlicht introduced new restrictions to limit monthly withdrawals to 0.33% of the net asset value, down from the previous limit of 2%. Additionally, the firm decided to waive 20% of its management fee in an effort to ease the financial burden on investors.
Sternlicht emphasized that the decision to cap withdrawals was made with the interests of loyal clients in mind. The majority of investors in the fund had not redeemed their investments, and Sternlicht felt it was important to protect their interests amid the turbulent market conditions. By implementing the withdrawal cap, Sternlicht aimed to ensure that loyal clients would not be negatively impacted by the actions of other investors looking to quickly exit the fund.
Despite the current challenges facing the real estate market and the fund, Sternlicht remains optimistic about the future. He criticized the Federal Reserve’s monetary policy as “unbelievably ineffective,” but expressed confidence that interest rates would eventually come down. Sternlicht believes that the real estate asset class has been one of the biggest victims of the unintended consequences of the Fed’s actions, but he remains hopeful that the market will stabilize in the coming months.
Barry Sternlicht’s decision to cap withdrawals from his real estate fund may have been a controversial move, but it was made with the best interests of loyal clients in mind. As the market continues to face challenges, Sternlicht’s commitment to protecting investors and navigating the turbulent financial landscape will be key to weathering the storm and emerging stronger in the future.