In today’s capital-rich environment, high-yield investors are being forced to push the boundaries in search of higher returns, from niche strategies in the US to operating company platforms in faraway locales like China and Brazil.
For example, Jay Mantz, the global co-head of Morgan Stanley Real Estate, described how his firm is pursuing residential platforms in areas such as China, India and Russia, emerging markets that will play a critical role in the bank’s global investment strategy going forward. “A huge emphasis on emerging markets is a must,” he told the crowd. (Click here for the related story.)
Barry Sternlicht, the chairman and chief executive officer of Starwood Capital, agreed, noting that his firm, which recently set up shop in India, is looking to have 100 people on the ground there in the next two years. In addition to emerging markets, Sternlicht is also focusing on his bread and butter: the hotel sector, albeit in very specific niches. Starwood Capital recently announced the launch of two new brands: “1” Hotels & Residences, billed as the first “luxury, eco-friendly global hotel brand,” and Crillon, an ultra, high-end luxury brand based on the eponymous hotel in Paris. According to Sternlicht, Crillon will strive to be “the most expensive hotel in every city where one exists.” In New York, for example, Sternlicht noted that rooms would go for $1,000 per night.
On the other side of the pricing spectrum was Apollo Real Estate Advisors, which recently acquired a rent-stabilized housing project in the Bronx. According to James Simmons, a partner at the firm, the deal required a significant amount of time and effort—negotiations between tenants, the seller and local municipalities lasted on and off for two years—but that the economic and social payoff were worth the elbow grease. Apollo is now looking to raise a pool of capital to target a similar investment strategy throughout the country.
One country drawing a significant amount of interest, both from investors at the conference and beyond, was Brazil. According to sources, The Carlyle Group is targeting the Brazilian property markets and may have a team up and running by the end of the year. (Click here for related story.) Chris Fiegan, the chief financial officer of Equity International, which has invested significantly in Brazil, told delegates that the pace of capital flowing into the country was creating a very short window for opportunistic investors.
“The key is getting there early enough,” Fiegan said. “I think there are only a couple years left.”
Although the flood of capital is creating new challenges for real estate investors, in some very unique cases it is also creating profitable opportunities. Sternlicht noted that a well-heeled Russian guest had recently started a 90-day sojourn in the most expensive suite at the original Hotel de Crillon in Paris. The price: €10,000 per night.
“He’s my new best friend,” Sternlicht said. “I sent him a bottle of champagne—and I asked him if he wanted to buy the hotel.”