brokerwatch

What is Starwood Capital Real Estate Income Trust?

Starwood Capital Real Estate Income Trust is a publicly registered non-traded real estate investment trust sponsored by Starwood Capital Group. The company’s portfolio consists mainly of rental housing and industrial properties, with a concentration on real estate in the American Southwest and Southeast. The REIT is managed by its advisor, Starwood REIT Advisors, L.L.C. The Advisor is an affiliate of the REIT’s sponsor, Starwood Capital Group Holdings, L.P.

Its initial $5 billion offering occurred in December 2017 and raised approximately $3.9 billion before closing in June 2021. Starwood Capital Real Estate Income Trust’s follow-on offering, comprising $10 billion in shares, launched immediately afterward and raised approximately $8 billion. The second follow-on offering launched in August 2022. The funds were raised mostly from individual investors, according to an article in the Wall Street Journal.  

Starwood Capital Real Estate Income Trust (REIT) Losses

As reported in the Wall Street Journal in March 2024, Starwood Capital Real Estate Income Trust is facing liquidity issues. The $10 billion fund has reportedly been trying to preserve its available cash and credit by limiting investor redemptions. For instance, in the first quarter of 2024, Starwood Capital Real Estate Income Trust faced $1.3 billion in withdrawal requests but satisfied less than $500 million of requests. The Wall Street Journal reported that, unless SCREIT takes on more debt, sells properties, or halts or limits redemptions, the real estate income trust may run out of cash and credit before the year’s end.

Brokers and financial advisors are often drawn to recommend real estate income trusts like Starwood Capital Real Estate Income Trust because they offer high commissions. However, these investments are inappropriate for conservative investors, retirees, and individuals who cannot afford to wait a long period of time to gain access to their investments. 

Risks of REITs 

Non-traded real estate income trusts like Starwood Capital Real Estate Income Trust contain several risks to investors. 

• Distributions are not guaranteed and may exceed operating cash flow. Distributions may be funded in part or entirely by cash from investor capital or borrowings. Distributions can also be suspended for a period of time or halted.
• Illiquidity. Non-traded REITS lock up investor money, which means individuals will not have access to it for a number of years without paying penalties and fees.
• Early redemption can be restrictive and expensive. Many non-traded REITs impose limits on the amount of shares that can be redeemed prior to liquidation. These limits can be a weighted average number of shares outstanding during the previous year.