This week, Mackenzie Realty Capital and its affiliates extended a tender offer to purchase 700,000 shares of Class S common stock from STARWOOD REAL ESTATE INCOME TRUST, INC. at a price of $17.50 per share in cash.
According to MacKenzie’s letter to shareholders, the share repurchase program of Starwood Real Estate Income Trust, Inc. is oversubscribed, with only 30% to 55% of requests being redeemed over the past year. Shareholders must re-submit requests monthly and may only have a portion of their investment returned.
Mackenzie Capital Management, LP is offering to buy Class S Shares for $17.50 each. The offer was made, together with its affiliates and represents an approximate 24% discount to Starwood’s estimated net asset value of $22.94 as of May 31, 2024.
Starwood Real Estate Income Trust to Decrease Redemption Limit
According to reports in May, Starwood Real Estate Income Trust, Inc. (SREIT), a non-traded real estate trust with nearly $9.8 billion in aggregate net asset value (NAV), has reduced the capacity of its share repurchase plan (SRP).
Starting in May 2024, the monthly redemption limit will reportedly decrease to 0.33% of stockholder NAV, and from July 1, 2024, the quarterly purportedly redemption limit will decrease to 1%. Previously, these limits were 2% monthly and 5% quarterly. The company reportedly says this change is intended to be temporary, and SREIT is waiving 20% of its monthly base management fees until the previous limits are reinstated.
The decision to lower SRP capacity allegedly aims to prevent the need to sell assets at low prices to meet redemption requests, to avoid unnecessary dilution for investors. This move is purportedly seen as a way to buy time for the company to generate non-dilutive liquidity. Despite this, Starwood has allegedly struggled with negative fund flows since Q4 2022, satisfying only 37% of redemption requests in April 2024. The unmet redemption requests reportedly totaled $326 million, or 3.5% of aggregate stockholder NAV, as of the end of April.
Starwood’s aggressive growth strategy, reportedly focusing on residential properties with high leverage, led to significant growth in its NAV, peaking at over $14 billion. However, rising interest rates have allegedly negatively impacted residential property valuations, increasing investor redemption requests.
The company has reportedly responded by selling $2.2 billion in properties in 2023 and borrowing over $1.3 billion from its credit facility to meet these demands, with its total indebtedness exceeding $15 billion.
Starwood Real Estate Income Trust: Liquidity Issues, Declining NAV
May 17, 2024: Starwood Real Estate Income Trust Inc.’s may be facing financial challenges, particularly regarding liquidity, according to an article in The DI Wire today. The non-traded REIT is reportedly dealing with liquidity issues due to investors withdrawing money amid rising debt costs and concerns over real estate valuations. Since the beginning of 2023, it has reportedly borrowed over $1.3 billion from its credit facility to meet redemption demands, with investors withdrawing $2.6 billion last year alone.
In April 2024, Starwood allegedly received repurchase requests totaling around $500 million, leading to speculation that it could deplete its reserves before the year’s end if it doesn’t borrow more or sell assets. As of April 30, 2024, the company purportedly had $752 million in liquidity, but this may not be sufficient to cover future demands, especially considering the ongoing redemption requests, according to the article.
Despite selling approximately $1.8 billion of assets, which generated a profit, the trust’s net asset value (NAV) reportedly declined by nearly 1.4% month-over-month in April 2024. Additionally, its declared monthly NAV per share allegedly decreased across all share classes. Starwood REIT reportedly continues to offer shares of common stock to raise funds, but the declining NAV and ongoing liquidity challenges may present significant concerns for investors.
If the reports are true, Starwood REIT’s struggles with liquidity, declining NAV, and ongoing redemption requests could be worrisome for investors, potentially impacting the REIT’s financial stability and future performance.
Starwood Limits Redemptions
As we reported in December 2022 Starwood Real Estate Income Trust limited investor redemptions.
We reported that Blackstone REIT (BREIT) was limiting redemptions after an influx of redemption requests, and then Starwood halted redemptions after investor withdrawal requests exceeded the REIT’s monthly limit in November 2022.
Starwood Real Estate Income Trust (SREIT), the second largest non-traded REIT, reportedly invests in stabilized real estate across the United States and Europe. The REIT allows for monthly redemptions of 2% of net asset value and 5% of NAV in a calendar quarter.
According to Barron’s, the REIT said in a letter to shareholders that it received repurchase requests equal to 3.2% of NAV in November 2022 and it fulfilled 63% of investor redemption requests. The REIT noted that any requests that weren’t filled would have to be made again in December.
The Trouble with Non-Traded REITs
Non-traded REITs are complex and high-risk investments for several reasons. First, the investment itself is unsuitably risky because it is dependent on the overall health of specific sectors of the economy.
Often less regulated than other types of investments (i.e., mutual funds, stocks, etc.), non-traded REITs generally pay higher sales commissions and fees than these other products. Further, non-traded REITs are generally illiquid, severely limiting the investor’s ability to access funds should the need arise.
Is a Non-traded REIT Suitable for you?
Broker dealers are required to perform adequate due diligence on any investment they recommend and to ensure that all recommendations are suitable for the investor. Firms that fail to do so may be held responsible for any losses in a FINRA arbitration claim.
Class Action vs. Individual FINRA Arbitration Lawsuit
People often wonder whether a large class action lawsuit is a better litigation option for them than an individual FINRA arbitration case. The answer depends on many factors, but typically if the loss sustained is large (say larger than $100,000), an individual arbitration claim is likely a better option. Class actions as a recovery option are more appropriate for grouping large numbers of individuals who have small claims – too small to generally pursue individually.
Free Consultation
If you suffered losses investing in Starwood REIT you may be able to recover your losses through FINRA arbitration. Please call the securities attorneys of The White Law Group at 888-637-5510 for a free consultation.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington.
