Prior to 1995, the name Starwood Capital was unfamiliar to most of the hotel industry. Starwood, named for the community near Aspen, Colorado, where one of its largest investors had a vacation home, bought its first hotels in 1993. But the firm didn't really take off until 1995 when it acquired Hotel Investors Trust, a real estate investment trust and standard operating company that traded as a single stock—a so-called paired-share or stapled REIT. Starwood Capital contributed more than $60 million worth of cash, property and notes to the new company and took a 71.7 percent interest.
Barry Sternlicht, the chairman and chief executive of the Starwood group, wasn't interested in the REIT's poorly maintained Days Inns and Vagabond Inns, but he did want the company's structure, which provided the company exemptions from federal income taxes.
Sternlicht changed the name of Hotel Investors Trust to Starwood Hotels and Resorts in 1995 and took it public in a $235.7 million offering. Later that year he bought the Westin Hotels group for $1.5 billion, combining its well-known brand name and small asset base with Starwood's no brand name and large asset base. When Starwood won the ITT Sheraton fight with Hilton in 1998, the REIT became one of the largest hotel companies in the world.
The party did not last for long. Following the ITT acquisition, Starwood lost its advantageous paired share status and the stock price slid precipitously. Nevertheless, Sternlicht, as chairman and chief executive officer of the company, created the W hotel chain, expanded the company's global presence and built Starwood into one of the largest and most profitable players in the industry. Today, the company has a market capitalization in excess of $12 billion.
Not bad for someone Bill Marriott, the head of the hotel company that bears his name, once called “a kid with a backpack.”