The Visionaire, New York
Owned by Opportunity Fund VII
In October 2009, we led the $2.7 billion purchase of the Corus Bank loan portfolio from the FDIC—one of the government’s largest distressed debt transactions during the Great Recession. The portfolio at acquisition consisted of more than 100 loans and owned real estate assets linked to high-quality condominiums, multifamily housing, office properties and land. Our strategy included “reworking” more than 40 large, non-performing loan positions and creating a dedicated entity (ST Residential) to manage the 13-asset multifamily portfolio. We subsequently created an innovative branded lifestyle message for the multifamily properties that allowed us to raise prices and rents while achieving healthy absorption rates, followed by a successful program of loan payoffs, condo sales and asset sales. Now, as we focus on managing the end of the life of this partnership, we can look back on an investment that reflects Starwood Capital’s unique combination of investment savvy, asset management skills and capital markets expertise.
In August 2013, we purchased—at a significant discount to par—an €809.4 million ($1.0 billion) non-performing loan portfolio from the National Asset Management Agency (NAMA), the Irish “bad bank.” Consisting of 18 loans secured by 39 Irish commercial properties, the portfolio was the first sale of Irish assets by NAMA. The pool is heavily concentrated in Dublin, Ireland’s largest and most liquid market, and comprises retail, industrial and residential properties, offices, parking garages and land/development sites. The transaction highlights our focus on the increasing number of distressed debt investment opportunities in Europe, and it has positioned us to benefit from the recovering Irish real estate market in general, and Dublin in particular. Building on this relationship, Starwood Capital in January 2015 purchased a portfolio of for extended-stay hotels and one residential complex in London following the completion of an administration and company voluntary arrangement process led by NAMA and Duff & Phelps.
Our growing mall portfolio is an example of our ability to leverage in-house expertise to add value to our investments. In two separate transactions in June 2012 and November 2013, Starwood Capital funds purchased a total of 14 attractive malls from the Westfield Group. Due largely to a longtime relationship between Starwood Capital and Westfield senior executives, we were able to hand-pick many of these assets. The overall portfolio has continued to grow under the leadership of Starwood Retail Partners, the wholly owned, fully integrated operating platform that we created to oversee our retail assets. Following the purchase of nine malls in 2014, our portfolio across multiple funds now comprises 28 properties totaling 27 million square feet of gross leasable area and more than $5 billion of gross asset value. Starwood Retail Partners has identified a number of re-tenanting and re-merchandizing opportunities for the assets in the portfolio, and has created “refresh” plans to enhance the shopping experience for customers.
Starwood Capital has long demonstrated the ability to tackle complex investments that offer attractive risk/reward potential. Such was the case when the Firm teamed up with affiliate Starwood Property Trust (NYSE: STWD) on the $1.05B acquisition of the largest special servicer in the U.S., LNR Property LLC, in April 2013. While Starwood Property Trust‘s purchase of LNR greatly enhanced its expertise in the distressed marketplace and added Starwood Mortgage Capital, a commercial real estate conduit loan origination platform, Starwood Capital through an affiliated fund also acquired two components. The first was LNR’s Commercial Property Group, a real estate portfolio consisting of 26 assets in nine states, concentrated in land suitable primarily for single and multifamily development. The second component was an interest in Auction.com, which sells owned real estate and loans on behalf of financial institutions, corporations and individual owners. In 2014, Google Capital invested $50 million in Auction.com and has committed to helping the company take advantage of its unique platform. We continue to evaluate both the commercial mortgage-backed securities markets and LNR’s portfolio to identify situations where we can provide potential solutions for troubled borrowers. As the named special servicer on almost $132 billion of real estate debt and manager of $13.7 billion of real estate-owned and distressed loans, LNR can offer unique insights into this sector. In addition, LNR subsidiary Hatfield Phillips International, one of the largest commercial real estate loan servicers in Europe, provides important visibility into the continued untangling of the region’s distressed real estate loan inventory.
In February 2013, we acquired a hotel management company with an extraordinary collection of 22 grande-dame style hotels (and one London conference center) with 3,768 keys and more than 500 meeting rooms for £356 million ($543 million). This purchase of Principal Hayley represented an opportunity to invest in an entire hotel company, including its management team, brands and technology platform. In January 2014, we expanded the platform by acquiring Four Pillars Hotels—a portfolio of five hotels located in Oxfordshire and surrounding areas, comprising 863 keys. We grew the portfolio further in March 2014 with the acquisition of De Vere Venues, including 23 owned and leased hotels (comprising 2,433 keys, 374 meeting rooms and 414,000 square feet of meeting space). In yet another example of our skill in building platforms of complementary assets, these three companies have been combined to create a leading U.K. hotel and conference operator that is well-positioned to capitalize upon the U.K. business recovery, as well as the ongoing strength of the London market. We also continue to seek out opportunities to enhance the portfolio—and, to that end, we recently acquired the only luxury five-star property in Glasgow, Scotland, Blythswood Square, as well as the landmark Roxburghe and Bonham hotels in Edinburgh.
In 2015, we took a major step in our continuing expansion into the select-service and extended-stay space with the $1.2B acquisition of TMI Hospitality—one of the largest owners, managers and developers of select-service hotels in the United States, with 184 operating hotels and more than a dozen in the development pipeline. This follows joint ventures that we have established across multiple recent funds that target properties with strong cash-on-cash yields that can be acquired at significant discounts to replacement cost. We have now assembled one of the largest collections of select-services hotels in the United States. Throughout the portfolio, we have implemented property improvement plans focused on enhancing guest-facing areas. These hotels should allow Starwood Capital to participate in significant upside if we enter an inflationary cycle, due to the properties’ ability to pass on inflation through rate increases. This investment highlights Starwood Capital’s ability to assemble well-curated portfolios below replacement cost and increase value through the efforts of our dedicated hotel asset management team.
As Miami’s largest condo landlord following our 2009 Corus Bank transaction, we had become intimately familiar with the city and its massive potential. With its sub-tropical climate and beaches, international allure and high barriers to entry, we were confident that the hangover from the Great Recession would fade and the market would heat up quickly. All we needed was the right opportunity to capitalize upon—and we found it with the Gansevoort, an unloved property blessed with a perfect location on South Beach. In February 2012, we purchased the fee-simple interest in property in a 50/50 joint venture with one of New York’s most successful private developers. After an approximately $250 million renovation, we celebrated the opening of the newly rebranded 1 Hotel South Beach in March 2015. The opening also marked the launch of 1 Hotels, our new lifestyle hotel brand that cultivates the best of eco-conscious design and sustainable architecture, together with extraordinary comfort and an unrivaled level of service. We have already seen remarkable demand for the property’s condos—amid a market that is red hot and growing hotter. We are thrilled that our bullish view on Miami has materialized, and are excited to have delivered what we believe is one of the city’s (and country’s) premier hotel and condo destinations.
In 1993, Japanese construction company Aoki Corp. was under pressure from its lenders to shed its non-core operations, including Westin Hotels & Resorts. The hotel company had been struggling, and a reputation for poor operating performance had prevented it from adding new management contracts. After extensive negotiations, funds managed by Starwood Capital acquired Westin in May 1995 for $537 million. We quickly installed a new management team to execute our strategy of operational enhancements, brand marketing and growth. As a result of these efforts, Westin saw its managed or franchised hotels increase from approximately 70 to more than 120, before Starwood Hotels & Resorts (NYSE: HOT) purchased the business for $1.6 billion in January 1998. This transaction served as an early example of Starwood Capital’s skill in identifying undervalued assets and enhancing operations through our asset management expertise—and helped establish us as a global leader in the hospitality space.
In November 2005, we acquired Le Meridien Hotels and Resorts’ portfolio of 32 properties at an attractive price in an off-market, highly structured transaction. The assets at acquisition were located in major cities and resort destinations, primarily in Europe, and included such irreplaceable properties as the Le Meridien Etoile in Paris, the Hotel Eden in Rome, and the Le Meridien Dona Filipa and Le Meridien Penina Golf & Resort properties in the Algarve, Portugal. Prior to our purchase, the portfolio had suffered as Le Meridien had been in financial distress since 2001, and previous ownership was unable to invest in the hotels. We therefore had the opportunity to strategically apply capital expenditures to the portfolio to help drive performance. To date, we have sold 30 of the hotels and fully paid down the portfolio’s debt. The transaction highlights Starwood Capital’s ability to anticipate macro opportunities—in this case, the recovery of the European lodging sector—as well as the Firm’s operational expertise in improving the performance of individual properties, while selling off assets at “opportunistic” prices.
In August 2009, amid the depths of the Great Recession, we launched Starwood Property Trust (NYSE: STWD) with an initial public offering—representing the largest blind pool company ever listed on the New York Stock Exchange. At the time, we recognized that traditional commercial lenders were withdrawing from the marketplace and a significant need existed for alternative commercial mortgage financings. The business has since grown dramatically, and Starwood Property Trust today is the nation’s largest commercial mortgage REIT, with a market capitalization of approximately $5.75 billion. In conjunction with Starwood Capital, Starwood Property Trust in April 2013 acquired the largest special servicer in the U.S., LNR Property LLC, thus gaining significant expertise in the distressed marketplace while also adding substantial scale and sophistication to the company’s operations. LNR subsidiary Hatfield Phillips International, one of the largest loan servicers in Europe, also helped position Starwood Property Trust to capitalize on the unwinding of European banks’ real estate lending portfolios. In addition, Starwood Property Trust in 2014 spun off its single-family residential operations into a new entity, Starwood Waypoint Residential Trust (NYSE: SWAY), that is now listed alongside Starwood Property Trust on the New York Stock Exchange—and is one of the largest publicly traded investors, owners and operators of single-family rental homes in the U.S. With its growing market presence, as well as its accomplished lending and asset management capabilities, Starwood Property Trust represents a prime example of Starwood Capital’s skill in building and operating innovative real estate businesses.
This leading global hotel company has its origins in Starwood Capital’s initial investment in publicly traded Hotel Investors Trust (NYSE: HOT) in 1994. At that time, HOT had an equity market capitalization of just $8 million and needed an immediate recapitalization. Through a series of complex negotiations, we acquired a majority interest in HOT, and completed a restructuring and reorganization of the company. Between 1994 and 1998, Starwood Capital dramatically expanded the rebranded Starwood Hotels—highlighted by the acquisition of two major hotel companies, Westin Hotels & Resorts and ITT Sheraton. Following these transactions, Starwood Hotels in three short years had become the largest hotel company in the world, with more than 120,000 employees at its peak, 895 properties in 100 countries, and ownership of brands such as W Hotels, Westin, Sheraton, The St. Regis, Le Méridien and The Luxury Collection. Barry Sternlicht became the Chairman and Chief Executive Officer of the renamed Starwood Hotels & Resorts in 2000. He is credited with the creation of the W and St. Regis hotel brands, as well as industry innovations including the Westin Heavenly® Bed and line of related products and Starwood Preferred Guest, the industry’s first “no-blackout” frequent-stay program.
At its inception in 1991, Starwood Capital focused on the disarray in the real estate markets resulting from the S&L crisis of the late 1980s and early 1990s. Over approximately 18 months, the Firm acquired 7,000 multifamily units at a fraction of replacement cost through the purchase of equity and distressed debt from the RTC, FDIC and troubled lending institutions. In assembling this portfolio, Starwood Capital focused on newer properties in fundamentally sound secondary markets, with the strategic view that the recovery would be both imminent and dramatic. In August 1993, the Starwood Capital funds contributed approximately 6,400 multifamily units to Sam Zell’s Equity Residential (NYSE: EQR) at its IPO. EQR went on to become the largest publicly traded apartment owner in the country, with Barry Sternlicht serving on its Board of Directors for several years. This transaction marked the first of numerous investments in which the Firm created leading real estate platforms or companies in order to enhance value for its investors.
Consistent with our strategy of investing capital at attractive potential reward levels relative to risk, we identified an opportunity to buy, renovate and lease a large assemblage of single-family homes. Relying on the efforts of Starwood Capital Group, affiliate Starwood Property Trust (NYSE: STWD) constructed a portfolio of 7,200 single-family homes and distressed and non-performing residential mortgage loans. We acquired this portfolio using a propriety network of local partners who then managed the renovation and leasing of these homes and the resolution of our loans. We also used our real estate acumen to build scale in select geographic markets that we believe have the greatest potential for long-term appreciation, and in which we could buy homes at the largest discounts to replacement cost. Our success in these efforts was reflected in the fact that the portfolio grew to almost $800 million, or 13% of Starwood Property Trust’s equity base. Once we decided to spin off these assets, we scoured the country to find a best-in-class management team to build an industry-leading company. To that end, Starwood Capital Group acquired Waypoint Homes, a veteran of this newly institutional asset class. In 2014, we completed the spinoff of our single-family rental business and created Starwood Waypoint Residential Trust (NYSE: SWAY)—now one of the largest publicly traded investors, owners and operators of single-family rental homes in the U.S.
Similar to our launch of another land development initiative—Starwood Land Ventures, in 2008—our investment in TRI Pointe Homes took place at a time when the macroeconomic picture appeared rather grim—particularly for the housing market. But, in fact, our entire investment approach—seeking out value amid distressed situations—is predicated on being a bit contrarian and seeing upside where others may not. In 2010, we created TRI Pointe Homes—a vertically integrated homebuilder focused on California, led by Doug Bauer, the former president and COO of William Lyon Homes. We believed that many of California’s housing markets had hit cyclical lows, and long-term demographics, household formation and population growth all implied a positive course ahead. Therefore, we thought that a pure-play homebuilder focused on California would be extremely well positioned in the market. Our theory was proven correct when TRI Pointe Homes (NYSE: TPH) went public in 2013—the first IPO for a homebuilder in almost a decade. In 2014, TRI Pointe Homes combined its assets with Weyerhaeuser’s homebuilding subsidiary, WRECO, in transformative transaction for the company—for which Starwood Capital CEO Barry Sternlicht serves as Chairman—that promises to accelerate the company’s growth.
In the mid-1990s, Starwood Capital recognized that the abundance of real estate capital, led by the growing REIT sector, was driving up pricing on traditional asset classes, and thus shifted its acquisition focus to mezzanine lending. After executing more than $1 billion in financings within a four-year period, the Firm capitalized on its sizable, well-seasoned portfolio and took the business public in 1998 by creating Starwood Financial, Inc. (NYSE: SFI). The Firm contributed the assets to a small, public REIT that it controlled and provided a dedicated management team to the entity. Barry Sternlicht became Chairman of the Board and several other executives of the Firm assumed Board seats. Starwood Capital subsequently expanded the company by closing on more than $1.1 billion of new financing commitments and by merging with TriNet Corporate Realty Trust. To eliminate market confusion, Starwood Financial was subsequently renamed iStar Financial, Inc., and grew to be one of the largest publicly traded finance companies focused exclusively on commercial real estate, with an enterprise value of more than $16 billion at its peak.
Starwood Capital has identified financing market dislocations twice in the last 19 years, and each time created a substantial lending platform–iStar in 1998 and Starwood Property Trust in 2009. Believing that another such dislocation had emerged in the European lending market, the Firm in 2012 created Starwood European Real Estate Finance (LSE: SWEF). Starwood European Real Estate Finance originates, executes and services commercial real estate loans for institutional-quality investors throughout Europe. The company has built a diversified portfolio of debt investments, collateralized by assets that include the historic Claridge’s, Connaught and Berkeley hotels in London, the Salesforce Tower and Centre Point office buildings in London, and the Battersea Place senior assisted living facility in London, as well as a Finnish retail platform and Dutch light industrial assets. Leveraging the comprehensive real estate expertise of its investment manager and a flexible investment strategy, Starwood European Real Estate Finance is well-positioned to address the changing dynamics of the European financing markets. This investment represents an example of Starwood Capital’s longtime focus on businesses with strong potential returns, diversification benefits and significant downside protection.
In December 2005, Starwood Capital funds completed the $3.2 billion acquisition of Groupe Taittinger and Société du Louvre (SDL), a family-controlled French conglomerate. At acquisition, SDL’s assets included one of Europe’s largest hotel networks—a unique collection of 15 luxury hotels, the most famous of which was the Hôtel de Crillon in Paris, and more than 800 budget hotels under three brands. SDL also owned several luxury goods businesses, including famed champagne producer Taittinger, iconic crystal maker Baccarat and Annick Goutal perfumes. Our eight-year track record with this complex investment includes a number of milestones: a revamp and expansion of the Louvre Hotels budget business that spurred dramatic market share gains, and eventually led to the sale of the business to China’s Jin Jiang International Holdings Co., Ltd.; the sale of the Taitttinger Champagne and Annick Goutal businesses; the sale of a 22% stake in Baccarat and an enhancement of the brand in advance of its 250-year anniversary that included the launch in March 2015 of the ultra-luxury Baccarat Hotel & Residences New York; the execution of a sale-leaseback transaction for 32 budget hotels in France at an attractive yield; and the careful disposition of the portfolio’s luxury hotels at compelling prices. This investment displays many of the hallmarks of Starwood Capital—creativity, agility and tenacity—and enabled us to leverage our expertise in the hospitality industry, as well as our branding and operational savvy, to maximize the value of the portfolio.
Starwood Capital is committed to environmentally sustainable investing, as well as responsible community development. In fact, we are building an entire brand—1 Hotels—around environmental responsibility, with LEED-conscious construction, all-natural materials and eco-friendly service offerings. This hotel brand is launching in 2015 with the opening of properties in Manhattan, Brooklyn and Miami’s South Beach. Starwood Capital also completed Manhattan’s first Platinum LEED-certified condominium project, The Visionaire, located in Battery Park City, in 2008. In addition, affiliate Starwood Energy Group has made a number of investments in renewable-generation energy projects—including three wind projects in Ohio and Texas.
Since Starwood Capital’s investments are generally in physical assets, we have a hands-on approach to all aspects of asset management, including Environmental, Social and Governance (ESG)-related issues. We work closely with the local community to ensure that each investment enhances the surrounding area. For example, during the process of acquiring the Viceroy Anguilla (which made Starwood Capital the island’s largest employer), the Firm partnered with the Anguillan government to form a mutually beneficial relationship and ensure the successful operation of the hotel.
Starwood Capital understands that no two investments are exactly alike, especially when it comes to ESG-related issues. By conducting in-depth research before entering each market, Starwood Capital gains a comprehensive understanding of the issues facing the community, which then enables the Firm to make an informed decision about whether to enter the market and, when it does, to deliver a product that ultimately benefits the area.