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Following a surge in requests in November, Starwood Real Estate Income Trust has officially joined other non-traded real estate investment trusts by limiting investor withdrawals.

In a letter to its investors, Starwood REIT said it fulfilled 63% of investor redemption requests in November after the repurchase requests exceeded a 2% limit, reaching 3.2% of net asset value. This means that the other 37% of investor redemption requests from November are being flatly refused, cutting off investors. Starwood REIT (SREIT) had advised its investors to refile these redemption requests in December.

With a net asset value of around $26.2 billion, SREIT is the second-largest nontraded REIT, behind Blackstone Real Estate Income Trust (BREIT). Less than a week ago, BREIT moved to limit redemptions in November after elevated investor withdrawal requests exceeded its 5% quarterly limit.

Investors attempting to cash out may signal growing anxieties regarding economic instability and the desire to liquidate assets. Unfortunately, non-traded REITs are often illiquid, as demonstrated by these withdrawal limits. One of the supposed draws of NAV Reits, such as Starwood REIT and Blackstone REIT, is the ability to redeem shares on a monthly basis. But when these redemptions are blocked REITs illiquid nature becomes truly exposed.

What Does This Mean?

Withdrawal limitations can be an unfortunate reality with REITs, which are highly volatile. Non-traded REITs, as their name suggests, are not traded on a stock exchange, and there is not an easy way to determine the value of these products.  This leads to extremely limited  liquidity, and recently numerous Non-Traded REITs have suspended or cut their distribution rate, which has limited their effectiveness as a consistent and reliable source of income for investors.  Coupled with large upfront fees and commissions of up to 15%, the illiquid and uncertain nature of the cash flows make these non-traded REITs unsuitable for many investors.  Most major brokerages do not sell the high cost non-traded REITS, which are typically marketed by third-tier independent brokerage firms.

While proponents of REITs would allege that withdrawal limits and high redemption requests can signal good performance, it can often be a result of insecurities regarding the REITs liquidity, and it doesn’t change the fact that investors should feel like they have the ability to liquidate their assets.

Investors should also be able to trust that their investments are safe, and that those in charge of handling their money are performing their due diligence on any investment to ensure that the investment is suitable for a particular investor. This needs to take into account that investor’s age, investment objectives, income, net worth, and investment experience.

Oakes & Fosher Can Help

If you, or someone you know, have lost money being invested in Starwood REIT or any other non-traded REIT and are concerned about withdrawal limits, dividend suspension, and/or the illiquidity of the product, please contact Oakes & Fosher for a free and private consultation. Oakes & Fosher handles cases on a contingency basis, which means there are no fees charged unless we collect for you.