While some commercial real estate fund managers are taking the current market doldrums as an opportunity to snatch up assets, others are moving away from property ownership to minimize obligations and liquidity risks.
Before 2023, Starwood Real Estate Investment Trust had never drawn into its credit line. Following a wave of redemption requests starting in 2022, the REIT has since drawn more than $1.3B of its unsecured credit of $1.55B.
In 2023 Starwood investors withdrew $2.6B. The Financial Times reports Starwood will run out of both cash and credit later this year if it does not sell more properties or borrow more funds.
Blackstone’s BREIT saw investor withdrawals of $12.4B as investors sought more flexible opportunities.
Liquidity is a key concern for investors and investment trusts. CRE investments are proving slow to sell, making liquidity difficult to manage. The growing percentage of distressed properties is only contributing to the difficulty, and investors are concerned about potentially being trapped with assets they cannot turn around or refinance on positive terms.
Adding to the CRE problem is the comparatively attractive performance of other investment vehicles. The 10-year Treasury is offering rates that are acceptable to many investors, and the equity markets are hovering around all-time highs.
Even though most investors polled still expect there to be no recession and also expect interest rate cuts from the Federal Reserve in the second half of the year, CRE allocations remain at a 15-year low. (Source)