Starwood seeks to raise up to $5bn for non-traded REIT

Starwood Capital Group is following Blackstone into the non-traded real estate investment trust space.

Starwood, the Greenwich, Connecticut-based alternative investment firm, filed a registration form with the Securities and Exchange Commission last week for Starwood Real Estate Income Trust. The firm is seeking to raise at least $150 million and up to $5 billion through the permanent vehicle, which does not yet have an initial offering date.

A spokesman for Starwood declined to comment.

SREIT will focus on stabilized, income-oriented assets across property types in the US and with the option to invest in Europe, according to the SEC filing. It can also invest up to 20 percent of its capital in real estate securities. In addition to equity, the vehicle can invest in debt that is outside the scope of investment for Starwood Property Trust, the firm’s real estate debt REIT.

PERE understands SREIT will make new investments, rather than rolling over any of Starwood’s existing properties into the vehicle.

John McCarthy, a Starwood managing director, is chief executive of SREIT. Starwood founder Barry Sternlicht, the 2017 PERE Lifetime Achievement Award recipient, is the chairman of SREIT’s board of directors.

“If the new ones are large enough, why couldn’t (the market) support multiple institutional-quality non-traded REITs?”

Starwood peer Blackstone entered the non-traded REIT space in August 2016 with Blackstone Real Estate Income Trust. The vehicle made its first purchase in January and had corralled $1 billion of equity as of June 30, according to BREIT’s second-quarter earnings report. Its third-quarter earnings have not yet been released.

“Right off the bat, Blackstone was raising more capital than the top four to five other top non-traded REITs combined,” Jim Sprow of alternative research firm Blue Vault Partners told PERE. “Right now, they’re probably running at a clip that would be 40 percent of the capital being raised in the non-traded REIT sector.”

Sprow said the non-traded REITs from Blackstone and Starwood were nearly identical in terms of investment strategy and structure, though he noted it is too early to predict how successful Starwood’s fundraising can be.

Other non-traded REITs affiliated with private equity real estate firms include JLL Income Property Trust, a five-year-old, $2.5 billion vehicle that is managed by Chicago-based LaSalle Investment Management and held 69 properties as of September 30, according to its third-quarter earnings report. Meanwhile, New York-based Deutsche Asset Management oversees RREEF Property Trust, which also launched in 2012 and managed eight properties and $172 million in total assets as of June 30, per its second-quarter earnings report.

Chicago-based Hines runs two finite-life non-traded REITs, the more recent of which was closed to new investors last month. The company filed with the SEC for a follow-on stock offering for Hines Global REIT II and to restructure it from a closed-ended vehicle into a permanent capital vehicle.

Capital raising in the non-traded REIT space began picking up in the early 2000s and hit a peak in 2013, with $19.9 billion raised, according to Blue Vault’s second-quarter report. Last year, the sector raised $4.6 billion, including $1.09 billion in Q2 2016, similar to Q2 2017’s $0.99 billion.

Despite the decline in overall fundraising, Phil Owens, a managing director at real estate research firm Green Street Advisors, told PERE that there is room for expansion.

“The market supported multiple non-traded REITS previously,” Owens said. “In theory, if the new ones are large enough, why couldn’t they support multiple institutional-quality non-traded REITs? There is a lot of room to differentiate around business lines.”

On an earnings call with reporters last week, Blackstone president Tony James said other entrants do not change the firm’s perception of the non-traded REIT space.

“We’re in finance. There’s nothing that’s patentable, so there’s nothing that other smart competitors can’t imitate,” James said. “Our ability to deliver that [quality] consistently, that’s where the magic sauce is, and that’s where I think we distinguish ourselves.”