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Rumors are circulating about the future of Starwood’s private SREIT, citing dwindling cash reserves and increased investor redemption requests. But, as we discuss in today's email, the fund has demonstrated strong performance with significant property sales and a healthy increase in same property NOI. While limiting redemptions isn't ideal, it may be a strategic move to maintain financial stability.

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This week in Propmodo Technology, we delve into access control for multifamily and commercial buildings. We'll examine the new standards that are mitigating cybersecurity threats in modern high-tech access control systems and discuss the role of access control within a building's broader security ecosystem. We'll also explore the growing trend of replacing traditional keys with mobile devices like smartphones and smartwatches, and how this shift is revolutionizing access control.

Now, let's dig in!

Is Starwood’s SREIT Really in Trouble?

An article published yesterday casts doubt on the future of Starwood’s private SREIT. It highlights that the $10 billion fund is running low on cash reserves and has had to limit cashout requests from investors. The article makes some valid points about the state of the real estate industry and the challenges some real estate funds face with high interest rates. However, it omits important details about Starwood’s REIT that present a more accurate picture of the fund's situation.

The article claims that SREIT has dwindling cash reserves, which is true: "The fund’s liquidity, consisting of cash, marketable securities, and a bank line of credit, has been drying up. It totaled $752 million at the end of April, down from $1.1 billion at the end of last year. It was $2.2 billion at the end of 2022, according to filings."

The main reason for the shrinking cash reserves is a spike in redemption requests. The company received around $1.3 billion in requests from investors to withdraw their money, but only $500 million of these requests had been granted. The article posits that these shrinking reserves and increasing withdrawals could force Starwood to sell properties, take on new debt, or further limit redemptions, all of which have downsides.

The article makes it seem like SREIT is in danger of becoming insolvent, but the financials tell a different story. Starwood released an optional financial statement last week that breaks down its profits into “same property NOI.” These numbers show that SREIT has actually been performing well over the last year. “Same property NOI increased by approximately $15.0 million, or 7 percent.” This, according to the filing, is more than twice that of its competitors Blackstone Real Estate Income Trust, Inc., Nuveen Global Cities REIT, Inc., JLL Income Property Trust, Inc., Hines Global Income Trust, Inc., and Ares Real Estate Income Trust Inc.

Starwood has already sold some of its properties, and contrary to the article's prediction of lower property values, they did rather well. “Starting in the second quarter of 2023 through today, the Company has sold approximately $1.8 billion of multifamily properties, industrial properties, and real estate loans at a $335 million profit and generated a 14 percent internal rate of return and 1.5x multiple on invested capital.”

A surge in redemptions is never a good sign for a fund, but these redemptions might have less to do with SREIT’s performance and more to do with the financial situations of the redeemers. Limiting redemptions is not ideal, but it might be all that Starwood needs to do to maintain a healthy financial situation. The article claims this is the worst-case scenario as it might hurt the company’s chances of raising more money. That might be true, but it hasn’t seemed to derail investment in BREIT, which made headlines when it temporarily paused its redemptions last year. Investors will understand that the situation called for stopping redemptions, and as long as the returns are good, they will likely return when the market improves.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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