I suggest anyone who is interested in Starwood Capital or Barry take a read at it.

Renaissance Man: As Starwood Capital Turns 20, Founder Barry Sternlicht Explores New Paths

Some quotes I found interesting

On Starwood’s investment in Hersha Hospitality Management:

The investment in Hersha Hospitality Management raises Starwood’s profile in hotel management. Its SH Group affilate manages the Baccarat brand and is developing four properties in the Middle East and four in China. Starwood’s investment in Hersha will help that company expand its management portfolio from about 80 properties today to as many as 200 in the next three to five years, Shah said. That growth will come from third-party management agreements, from hotels owned by Starwood funds and from managing hotels acquired by Hersha Hospitality Trust. In approaching such deals, Sternlicht takes the role of a visionary, who masters details without getting lost in them, Shah observed. “He’s a very demanding executive of his team as well as of his investors and his partners.”

On Starwood’s creation of Starwood Property Trust

Starwood Property Trust also marked Sternlicht’s return to the public markets after his departure from Starwood Hotels in 2005. In its mission, however, Starwood Property more closely resembles iStar Financial, the publicly traded investment banking firm that Sternlicht founded in 1998 and chaired until divesting Starwood’s interest in the company five years later.

I always knew that Starwood Property Trust was somewhat modeled on iStar Financial.

Lastly, it’s interesting to me that Sternlicht has some of the same interests as me:

The hotel business, meanwhile, had proven to be tailor-made for Sternlicht’s wide-ranging interests in capital markets, operations, marketing and design

andrew@alconic-inc.com

Why would they do that?

What company would not want to join up with a highly reputable competitor, plus put some money in their pocket? Have better opportunities due to the association, more money to do transactions with and just go to the next level of the business?

Starwood Property Trust was presenting an unconditional offer for the entire company as long as they did not go through with the share dilution they were about to price the next day. In fact, Starwood was even willing to go through with the pending purchase of mortgage assets from Barclay Capital Real Estate as long as they had 5 days to review the documents. So now Crexus stockholders are burdened with a share price that is lower than it was on Monday.

Honestly, I wouldn’t be surprised if the Barclay Capital Real Estate portfolio was also being pursued by Starwood Property Trust, who lost out on it to Crexus. Starwood then thought it may make sense to just purchase the acquirer, and then along with Crexus’ assets, they’ll get the Barclay assets as well. How else would Starwood be able to do due dilligance on the Barclay porfolio – $528 million dollars worth – in as little as 5 days if they were not already pretty familiar with it?

Whenever takeover attempts fail, the company being taken over always has a rough road ahead of it – it has to perform a little better than it ever did before or else investors and partners will sit back and think – “They really should have sold to such and such” and end up being a much smaller and less powerful company. I hope for Crexus’ sake that doesn’t happen, their stock offering is successful and the Barclays transaction goes through without a hitch – or else Starwood (or another company) may take another stab at Crexus and win, but this time on the cheap.

What do you think? Should Crexus have taken the buyout offer? Will they be able to pull off everything? Let me know your thoughts in the comments or via email.

andrew@alconic-inc.com

New York Magazine scored a great interview with him, and ended up reminding me that it was Barnett’s Extell that sold the building that currently houses the W Times Square to Starwood Hotels in 2001.

This is the same building, located on 47th St, behind the Roxy Deli where Robert Earl originally planned to open the first Planet Hollywood Hotel (back in 1997) which was to be managed by Sheraton, at the time known as ITT-Sheraton before being purchased by Starwood Hotels. (And everyone thought that Sheraton managing the Planet Hollywood Las Vegas was out of left field).

The project languished without even getting off the ground for a number of years, with Gary Barnett finally taking ownership of the property, and building it out. Then right as it was about to open, the events of 9/11 occurred, the project was once again put on hold because travel essentially dropped. Gary Barnett ended up having Barry Sternlicht’s Starwood Hotels purchase the property and open it as one of W Hotel’s flagship properties.  The W Times Square is still owned by Starwood Hotels to this day.

I knew about this years ago and have been looking for information on it since then. Finally! My questions have been answered.

andrew@alconic-inc.com

Not too many details have been released about this transaction – including the cost of the transaction – but both companies claim that Starwood will contribute both capital and deals to Hersha Hospitality Management.

Starwood’s purchase of just less than a controlling interest gives them easy access to a great hotel management company – enabling them to not have to staff up and create the SH Group as a leading management company from scratch, it also provides Hersha, a private company, with some capital as well as great management opportunities that Starwood Capital is privy to due to its own investments.

HHM specializes in select-services brands – as that makes up almost 75% of their portfolio – although in the press release its stated that HHM and Starwood will look for both select and full-service contracts. It’s interesting to note that Barry Sternlicht has said in the past that the opportunities in lodging at this point are more in the mid-scale/select services vs high-end luxury. Most of HHM’s properties are branded by the majors – IHG, Marriott, Hilton and Starwood, but lately they have been managing more independent boutique hotels, especially in New York City.

It’s hard to say exactly what this transaction means for Starwood Capital’s own SH Group, 1 Hotels & Baccarat Hotel brands, but its obvious that this will benefit both Starwood & HHM by providing each party with a service that they need. One change I can see this transaction enabling HHM to do is cast a wider net increasing their geographic service area – currently HMM manages properties encompassed within the triangle which goes from Boston, MA, to Virgina to Pennsylvania.

Today was the first day of the Annual NYU International Hospitality Industry Investment Conference, so this could be the first of a few good deals that are announced, and hopefully more details will be provided.

andrew@alconic-inc.com

Over the last few years Dubai has been the center of all construction activity in the world, the city-state has come from being a barren desert to a major city with high rises, luxury shops, apartments, and offices at every turn. Everytime I came across a boom-time story about Dubai, I become even more skeptical about the longterm prospects of the area.

How is it possible that an area of that size can sustain that much development in such a short amount of time. How can they fill so much office space, hotel rooms, condos, vacation homes, luxury retail stores, etc. Where will the people come from? Do you actually expect millions of people will get up and move to Dubai in such a short amount of time? It seems the only legitimate “industry” that Dubai has was based on the expectation that the area would continue to grow and prosper; the question always remained (and continues to do so today) is: What would be the economic impetus that would enable it continue to grow and prosper.

Dubai has a population of 1.4 million people, from stats I’ve read – 90% of those people are there for construction jobs of one type or another. Even countries such as China – which has a population of over 1.3 BILLION (over a much larger area of course) is not on a building boom like Dubai. What were Dubai’s rulers thinking? How did they expect to sustain all of this? What were the foreign developers thinking?

If you look at most developed countries and the large cities within them – they exist based on a certain unique industries. The cities and countries have slowly grown and developed based upon those industries over centuries and decades. Dubai wasn’t even on the map 10 years ago. Most American people have never even heard of Dubai until the last few years.

Sure, Dubai has oil – but all the oil fields are owned by the Government. Tourism is there, yes, the weather is always beautiful and beaches are nice – but the heat is at times unbearable which ends up putting a limit on the tourism potential. Who is going to go on vacation to Dubai – a 12 hour plane trip from NYC – to sit on the beach in 100% humidity and 120 degree desert temperatures? Not very many people.

Could the rapid development of Dubai end up being one of histories largest mistakes? In 10-20 years, will Dubai become a barren, abandoned waste land?

Money may buy buildings, it may buy roads, but after awhile Economics 101 kicks in and reality hits.

andrew@alconic-inc.com

Originally when the project was halted last August, it was expected to be started up again within 9 to 12 months, but that time has come and gone and the economy as a whole hasnt seen too much of an upturn – especially in the Vegas market where MGM’s City Center is opening later this year to a glut of unsold condos and very inexpensive hotel rooms for a brand new, top of the line hotel development.

Echelon Place was to be Boyd’s first very high-end development, and first development on the Vegas Strip – most of their other developments are smaller casinos in Downtown or right outside of Vegas. Boyd’s single development in Atlantic City – the Borgata, is 50/50 owned by MGM Mirage, but Boyd does the day-to-day operations of the Borgata.

We’ve all seen how the world is a different place today than it was a year ago – and especially different from even two years ago, so I find it hard to believe that the project will start-up again in 3 years looking like it does today. I think it will be significantly re-designed or perhaps even broken up. It is a prime piece of Vegas Strip property though – so I cant see it going to waste forever.

I have to say though, Boyd has done so well over the years with the smaller developments – and now their attempt at purchasing some casinos from bankrupt Station Casinos is more up their alley – but they still look at the Echelon Place property as essential to their business going into the future.

andrew@alconic-inc.com

MGM Mirage is cutting the price of the condos at its $8.5 billion City Center development by 30% due to the economic downturn..

…MGM Mirage had hoped to sell its condos at top-of-the-market prices, which would have brought in $2.6 billion. However, it ended up getting deposits on only a portion of the inventory. If all of those deposits were to result in sales, it would mean $1.6 billion in revenue.

For such a high profile condo project publically announcing that they have lowered the prices of their condos by 30% demonstrates that even top of the line properties, in the center of the Las Vegas strip, properties that you’d expect would be in high demand, are having to take drastic steps to ensure that those who have placed deposits can close – and hopefully encouraging those who are on the sidelines to jump in.

MGM Mirage’s decision will weigh heavily on the Cosmopolitan, a project whose development started before City Center, and will definitely end after City Center is up and running. Hopefully for all those who have placed deposits at the Cosmopolitan, they will be relieved to hear that price reductions will be coming down the line – if that ends up not occurring, the Cosmopolitan developers will have a much more difficult time closing than they ever expected.

I’m really glad that MGM Mirage  has taken this step – it will help soothe the nerves of those who are looking to close, but are unable to because of financing, and hopefully put a little bit of a jump start into the economy.

I wonder how long it will take to see more of these deals come down the line.

andrew@alconic-inc.com

Today’s big story (in my mind at least) is a Wall Street Journal article today that brought to light Starwood Capital’s new found interest in the Extended Stay bankruptcy battle. (I’m writing this directly from my blackberry so I can’t get a direct link).

In a nutshell – it states that Starwood Cap is joining a group of investors (mainly those involved with the first mortgage of the deal) in putting down funding to take the deal out of bankruptcy court.

This deal does have some pretty hefty requirements – 10% down, within 10 days of closing – in cash, but nothing too unmanageable.

This sounds like it could be one of the first major deals that Starwood’s new REIT is getting involved in, as it fits directly in line with their intentions when they launched the IPO.

The question I have is what is Starwoods intentions – is this simply a deal which they are getting involved in due to the potential upside, or is this a deal they want to get involved in to expand their hotel portfolio? About a year or two ago I expected Starwood to purchase Extended Stay Hotels, since at the time, it would have fit in with their hotel expansion strategy.. Although now, with the different outlook on the lodging industry that’s a different story.

I’m glad to see that Starwood is getting involved, as it does add some legitimacy to the process, plus they also seem to have the backing of all the other mortgage holders and even the federal government who holds a portion of the mortgage through their takeover of Bear Sterns last year.

Andrew@alconic-inc.com

Now it looks as though Starwood is looking to sell each property individually – as that would provide a higher total sale price than a portfolio sale of 9 hotels would.

Unfortunately, Starwood’s sale of each individual hotel within the Societe Du Louvre portfolio goes against Starwoods original intentions of the hotels – keep them together and even expand the Crillon brand name with 6 star hotels throughout the world. In fact, in the press release when the deal was first announced the then-Chairwoman of Groupe Taittinger (which owned Societe Du Louvre) said:

It is of great importance to my family and myself that Barry and his team will bring a unique expertise and a full commitment to further developing the group our family has built over more than a half century,

Barry Sternlicht even chimed in by stating

We look forward to building on the company’s proud heritage by growing its economy hotel business in France and into new markets, particularly Eastern Europe, investing in the renovation and restoration of several of its existing jewel properties and working to extend their famous brands to new assets around the world.

It’s very possible that Starwood might only be selling the real estate and fully intend to keep the management contracts as well as ownership of the brands itself upon the close of the sales – but until that’s confirmed it’s anyone’s guess.

It’s a completely different economic environment now vs 2005 when the purchase of Groupe Taittinger was first announced and optimism was still abundant that the economic boom would continue unabated. That optimism called for Starwood to launch not only a Crillon hotel brand, but also a Baccarat (also purchased from Groupe Taittinger) and 1Hotels & Residences brand. As we know now – there is only one 1Hotel location actively being built (Washington DC) and two Baccarat Residences locations  – both overseas, and no expectation that a Crillon hotel brand may ever see the light of day.

The loss of income from those properties that have not been built/open yet is putting the pressure on Starwood to continue to pay their high returns to their investors – it’s commonly known that Starwood guarantees a 20% return on investment for the investors – making Starwood resort to selling the assets individually to ensure that those returns can be met, as well as ensure an ample supply of new investment money will be available.

I know we haven’t seen the end of Starwood Capital’s investment into the hotel/lodging industry – but the book may soon close on Starwood’s ownership of some of the most elite properties in the world – all in the name of saving face. Its an admirable move from an admirable company – instead of being so consumed with owning the best and having that title, they are showing their true colors by staying true to their reason for being – the clients who provide the money to invest.

andrew@alconic-inc.com

Amazing what 8 months can do in this economy. In January, Hilton Hotels looked to be the next darling of the hotel industry – not only was it owned by a cash rich parent – The Blackstone Group – who seemed to be willing to do whatever it would take to invest in the brand and make it #1, and was just about to launch two new brands – Home2Suites and Denizen. Hilton’s re-invigoration was going smoothly, Blackstone really seemed to be making an effort to ensure the viability of the company into a long term asset.

Then suddenly a few months later Hilton was essentially forced to cancel Denizen – due to the lawsuit from Starwood hotels. Putting Hilton even further back on their ability to compete with Starwood’s W Hotels, and now, today, come reports from the Financial Times & the London Independent that Blackstone is looking to divest of the Hilton Corporation. (Interesting to note that two UK based newspapers reported this prior to any US based news outlets).

From those reports any divestiture is in very early stages and will probably not be carried out until next year or so, but the options on the table are a public offering of some of the company assets along geographic lines, or sale of some of the company assets to competing companies.

Details haven’t really been spelled out – but any of those options can be extremely detrimental to the future viability of the Hilton brand. If Blackstone is intending to split the company by geographic lines – that would be the equivalent of putting Hilton into the past when it was two companies Hilton Corporation and Hilton International, which would limit Hilton’s ability to keep the brand experience the same throughout the world. If you recall, the main reason that both companies were merged was to ensure just that. Why would Blackstone want to go back to something that never worked that great in the past even.

The other option of selling assets to competing companies can also spell major trouble for the Hilton brands future if they are referring to selling what is now a Hilton hotel to a company like Starwood or Marriott, but it also could be selling those hotels to  hotel management firm – such as Host, or Interstate, etc.

Maybe I’m going about this all wrong, but it sounds like Blackstone is willing to completely destroy the Hilton brand – all in the name of cash; you gotta do what you gotta do, but Blackstone was originally planning on the Hilton purchase to be a long term holding, now it seems as though they may do to Hilton what they’ve done to all the other hotel brands and some private companies they’ve bought – break them up and sell them separately to the highest purchaser.

One thing that makes Hotel brands so valuable is having quantity – quantity in the number of rooms, locations and brands, with the goal of having something for everyone – every price point, ever amenity required at every location that person would want to visit.

I hate to say it, but I hope that this doesn’t spell the beginning of the demise of the Hilton brand.

andrew@alconic-inc.com