Starwood's Sternlicht Defends Withdrawal Limits To Safeguard Loyal Investors

Starwood Capital Group Chairman and CEO Barry Sternlicht justified his decision to restrict investor withdrawals from his real estate fund, stating that it would safeguard investors who have not previously withdrawn funds.

In a May 23 letter to shareholders, Sternlicht informed investors that the $10 billion Starwood Real Estate Income Trust would cap monthly withdrawals at 0.33% of net asset value, down from the previous 2% limit. The trust is also waiving 20% of its management fee.

The trust, which invests in multifamily, industrial, and office properties, has declined as refinancing loans have faced challenges due to the Federal Reserve's aggressive rate hikes. The real estate trust, among the world's largest, had $752 million of immediate liquidity at the end of April.

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"With all the hysteria in the media, people are saying, ‘I want to get out now and I'll come back in later when the coast is clear.' So we took a very tough decision," Sternlicht said on CNBC's "Squawk Box" on June 5. "I decided that for the benefit of the 80% of people who've never redeemed, we would slow down redemptions. … We hope this is going to be a six-month thing."

Sternlicht, with an estimated net worth of $1.6 billion, has criticized the Fed's monetary policy as ‘unbelievably ineffective.' Despite this criticism, he anticipates a forthcoming decline in interest rates.

"The real estate asset class is probably the biggest victim of the unintended consequence of [Federal Reserve Chairman Jerome Powell's] actions," Sternlicht said. "The spreads are coming in, which means the markets are healing, the future's getting clearer."

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In May, Sternlicht warned of the potential for one or two regional and community banks in America to fail weekly. He cited their insufficient cash flow to manage significant losses on real estate debt as the primary reason. 

According to the Federal Deposit Insurance Corp., five banks have collapsed since March of last year, beginning with New York-based Signature Bank and followed by First Republic Bank in May.

"I think people are looking for these cracks, and you're going to see the crack develop now," Sternlicht said at the time. "You're going to see a regional bank fail every day … or every week, maybe two a week."

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