Starwood invests $250m in latest platform deal

In its third entity-level real estate transaction this year, the Connecticut-based firm purchased a 30% stake in Yotel, joining a group of Kuwaiti investors in the chain.

Starwood Capital Group continues to expand its lodging investments with the purchase of a 30 percent interest in London-based Yotel, a global chain of mid-market hotels, the firms said Tuesday.

“Yotel has global appeal and can be easily scaled up with key strategic acquisitions and developments in desired city center and airport locations.”

– Barry Sternlicht

Starwood, the Greenwich, Connecticut-based alternative investment manager, invested a total of $250 million with the purchase of the stake and the allocation of capital for growth, according to the statement. Yotel has hotels in New York, Boston, San Francisco, Amsterdam, Paris and London, with another in development in Singapore. Starwood is focused on helping the company expand in North America, Europe and Asia, with properties planned in Edinburgh, Glasgow and Amsterdam.

A group of Kuwaiti investors – comprising conglomerate Jassim Al-Bahar Group, IFA Hotels and Resorts, IFA subsidiary United Investment Portugal and real estate company Aqarat – jointly own 65 percent of the company. Management and unspecified parties own the remaining 5 percent stake, a spokeswoman said. She declined to specify who sold the 30 percent interest to Starwood.

“Yotel is an exciting brand focused on technology, smart design and a distinct guest experience at an affordable price, which is the right strategy amid the current wave of digital disruption,” Starwood founder Barry Sternlicht said in Tuesday’s statement. “Yotel has global appeal and can be easily scaled up with key strategic acquisitions and developments in desired city center and airport locations.”

It was unclear as of press time through which vehicle capital Starwood is making the Yotel investment. Starwood, which manages $54 billion, is in the final fundraising push for its latest opportunistic vehicle, Starwood Global Opportunity Fund XI. Launched last year, the firm has circled more than $6 billion of approved commitments for the fund, already beating its $5 billion-$6 billion target, PERE reported last week. A final close for Fund XI is expected by the end of the year or in early 2018.

This year, Starwood has invested in entity-level deals across property types. In June, for example, the firm teamed up with Tunstall Real Estate Asset Management, the London-based alternative investment management firm, to acquire UK housing regeneration business Pinnacle Group in an 50-50 joint venture, PERE previously reported. In January, Starwood agreed to purchase a multifamily real estate investment trust, Milestone Apartments REIT, for $1.3 billion in a deal that would add 24,000 apartment units to its portfolio.

Not all of Starwood’s deals have been as successful. In June, the firm saw its $605 million deal to buy homebuilding REIT Forestar collapse after an unsolicited buyer sparked a bidding war. Despite its loss, Starwood walked away with a $20 million breakup fee.

Starwood, founded in 1991, has a long history in the hospitality space, starting with its 1994 purchase of the majority of the distressed senior debt of Hotel Investors Trust, a nearly-bankrupt public company. That acquisition formed the basis for what would become Starwood Lodging, and then Starwood Hotels & Resorts Trust. In 2000, Starwood Capital exited its investment in Starwood Hotels, though Sternlicht stayed on as chief executive until 2004.

Since then, Starwood has continued investing in various hotel businesses, including the 2013 purchase and subsequent merger of three British hotel companies. In 2015, Starwood bought American select-service hotel company TMI Hospitality and launched two hotel brands, the Baccarat Hotels & Resorts and the 1 Hotels. The firm owns a total of 764 hotel properties, according to data provider Real Capital Analytics.

Newport Beach, California-based Green Street Advisors noted in a September report that the lodging industry is overall in a “mature” phase, though a downturn is “unlikely” in 2017.

“Transaction velocity remains muted, but deals are still getting done,” the advisory firm said in the report.