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In a similar fashion to the BREIT story we shared last week, another large private REIT is running low on liquidity amidst a wave of investor redemptions driven by mounting fears over real estate valuations. Starwood Real Estate Investment Trust (SREIT), one of the largest unlisted property funds, has drawn more than $1.3 billion of its $1.6 billion credit facility since the beginning of 2023 to cover redemption requests. Managed by private equity firm Starwood Capital, the fund had entered 2023 without tapping the credit line. At the current pace of redemptions, “SREIT would run out of credit and cash in the second half of this year unless it borrows more or sells more property assets.” But SREIT’s high debt load of $15 billion complicates both solutions. On one hand, the fund’s leverage ratio, which is currently roughly twice that of public peers, limits how much additional debt the fund can assume to meet withdrawals. On the other hand, keeping leverage constant would mean selling ~$1.1 billion in properties to generate enough cash to meet anticipated withdrawals and debt repayments. However, if additional property sales were to occur at valuations lower than expected, it would further depreciate the company's asset value and worsen its debt ratios. None of the choices facing SREIT look appealing.

Technology journalist and co-founder of media brand The Verge, Nilay Patel, recently hosted Google CEO Sundar Pichai on his podcast Decoder. The central theme of their discussion was a concept Patel has been exploring over the past year- which he refers to as “Google Zero.” In a world where AI increasingly empowers search engines with overviews and summaries, there is a real possibility Google traffic could go to zero for some businesses. But Pichai explains how a similar "Google Zero" argument arose roughly ten years ago when people thought “the web was dead” as the mobile smartphone ecosystem grew. He explains how with every new technology, there is an initial period marked by uncertainty about how to best employ it. But Pichai reiterates that Google’s value-add remains the same– to provide users with a broader context during their searches, with the goal of  “showing them something they had not initially thought of”.  And pairing AI with search has enhanced that experience so far. One of these features that has received positive feedback has been AI Overviews, which leverages AI to summarize the results of a search for the user. According to Pichai, internal metrics indicate that “content and links within AI Overviews get higher clickthrough rates”. In his view, AI-driven results help the user understand better, which leads to higher interaction levels with the underlying content. This brings us back to the main topic of the conversation between Pichai and Patel. So far, the data has shown that AI is complementary to search, not replacing it. So maybe the future is more accurately described as “Google Enhanced” instead of “Google Zero.”