Barry Sternlicht says investors shouldn't think of Starwood REIT's property fund 'as an ATM'

By Joy Wiltermuth

"Nobody should think they should use them as an ATM."Barry Sternlicht, chairman and CEO of Starwood Capital Group

That's billionaire Barry Sternlicht, chairman and CEO of Starwood Capital Group (STWD), telling investors on Wednesday not to think of his $10 billion Starwood Real Estate Income Trust, and similar investment funds, like ATMs.

"You should have some liquidity, but the risk is everyone gets out at once," Sternlicht said in an interview on CNBC's "Squawk Box" program.

Semiliquid vehicles, including the roughly five-and-a-half-year-old Sreit, have come under fire from investors looking to pull money out as prices for U.S. commercial real estate tumble in the wake of the pandemic and as interest rates have climbed.

Sreit and similar funds, like Blackstone Inc.'s (BX) Real Estate Income Trust, aren't publicly traded vehicles. Many commercial real-estate funds have limited investor redemptions in the past two years.

Sreit spelled out its plans to cap redemptions at 0.33% of net asset value per month, and at 1% per quarter, in a shareholder letter last month, while also saying "we cannot recommend being an aggressive seller" of properties, given current market conditions.

Despite scrutiny of the fund's liquidity battles, Sternlicht told CNBC on Wednesday that his fund still has the "luxury" of time, and that it isn't being forced to liquidate assets amid a backdrop of low property-transaction volumes since the Federal Reserve began to aggressively hike interest rates in 2022.

"The only one who is trading is [someone who] has a mortgage coming due. And if they can't find someone to rescue them, they'll sell it," Sternlicht said.

About half of Sreit's exposure is in market-rate apartments, with another 20% in affordable housing and 13% in industrial. It has only a 7% exposure to the hard-hit office sector.

Sternlicht has repeatedly called for the Fed to cut interest rates, saying the commercial real-estate sector faces a crisis.

Related: Bulletproof to bust: Top AAA bonds tarnished by a Blackstone office deal's blow up

-Joy Wiltermuth

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06-05-24 1439ET

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