Starwood pursues another path to growth in APAC

Becoming a part of Asia’s largest real asset manager, ESR, is Starwood’s latest attempt to grow its exposure to the region.

The Miami-based firm agreed this week to acquire a 10.7 percent equity stake in ESR Group in a structured transaction. The deal sees Redwood Investment Company, controlled by co-founders Charles de Portes and Stuart Gibson, fully repay an existing debt to Starwood.

Starwood has long been active with an Asia real estate business – without making any major dents in the market. With assets under management currently at $4.5 billion, the firm’s 19-person Asia real estate team is led by former Lone Star executive Kevin Lee, who joined in 2019 following the departure of its long-serving executive Kevin Colket. Similar to its global asset management peers, Asia has been the smaller part of the manager, which has $115 billion of assets on its books overall.

To date, Starwood has gained footholds in the region in various ways, real estate debt one of them. The firm has originated almost $2.6 billion in Asia-Pacific loans since 2019, including for Blackstone’s A$8.9 billion ($5.9 billion; €5.4 billion) acquisition of Australia’s Crown Resorts in 2022.

The firm also acquired assets directly across the region, notably in Japan and Australia. It currently has a portfolio of more than 18 assets in Japan, including its purchase of an eight-asset, 116-unit, multifamily portfolio in central Tokyo in 2021. In addition, Starwood last year gave Centuria Capital a A$500 million mandate to invest in industrial assets in Australia.

Besides these, the firm has made several takeover bids for REITs, though not all successfully. It made a tender offer to acquire the remaining 94.93 percent stake in Invesco Office J-REIT in 2021. It also attempted to take over the Australian Unity Office Fund for A$485 million in 2020. While neither of these deals materialized, Starwood is understood to have gained access to more acquisition opportunities through the processes.

The firm’s acquisition of a minority stake in ESR Group does not give it control over a platform or assets, but does allow Starwood to tap into new markets and investors – as well as its new portfolio company’s expertise in the region. With approximately $156 billion in total AUM focused on the currently favored logistics, data centers and other alternative property types, ESR has an integrated development and investment management platform extending across key APAC markets, including Australia, Japan, South Korea, China, Southeast Asia and India.

Most importantly, the deal provides Starwood with the opportunity to partner with APAC’s largest real asset manager. ESR’s focus on logistics and data centers align with Starwood’s key growth areas, according to Barry Sternlicht, chairman and CEO of Starwood Capital. Indeed, the firm is targeting a 20-30 percent sector allocation to data centers and digital infrastructure for the first time with its latest real estate opportunistic fund, according to a PERE report.

Starwood’s ongoing efforts to build its platform in Asia underscore the importance of the region to global private real estate managers. But establishing a strong foothold does not come easy even for the powerhouses of the industry. Starwood’s piecemeal growth so far demonstrates that.