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Sternlicht Considers Starwood Stake Sale for New Funding

Sternlicht Is Considering Starwood Stake Sale for New Funding
Barry Sternlicht, chairman and chief executive officer of Starwood Capital Group LLC, is increasing hiring at Starwood to pursue investments ranging from distressed debt in Europe to U.S. residential property. Photographer: Jonathan Alcorn/Bloomberg

Barry Sternlicht, chairman and chief executive officer of Starwood Capital Group LLC, said he is exploring the sale of a stake in his property-investment firm to raise cash and finance new businesses.

“It is something that we’re considering,” Sternlicht said in an interview with Bloomberg Television that will air today. “There is only so much capital that we can invest because our funds are long-lived,” he said. Having a partner to contribute capital in future investments and seed new business lines “makes some sense to me.”

Sternlicht, 52, is increasing hiring at Greenwich, Connecticut-based Starwood to pursue investments ranging from distressed debt in Europe to U.S. residential property. The investor, who created the W boutique hotel chain while leading Starwood Hotels & Resorts Worldwide Inc., also is looking to expand in consumer brands, he said in the interview.

Private-equity firms including Blackstone Group LP, Carlyle Group LP and Apollo Global Management LLC have sold minority stakes to pensions and foreign governments before going public. While Carlyle is trading above its initial public offering price in May, Apollo is selling for 16 percent less and Blackstone, which went public close to the stock market’s peak in 2007, is down 52 percent from its IPO price.

“It works out pretty good for the selling people,” Sternlicht said. “It hasn’t so far worked out that great for any of the shareholders.”

Tom Johnson, a Starwood Capital spokesman with Abernathy MacGregor Group Inc., declined to comment on whether the company has any plans to eventually go public.

Fund Returns

Returns for real estate funds are poised to fall as interest rates sit at record lows, Sternlicht said. While he isn’t getting out of property investments, he’s seeking other asset classes, he said.

“If the world interest-rate climate stays at 1-2 percent, we’re not going to be able to get the 20 percent returns” that funds like his used to target, he said. “A 12 and 14 should be fantastic. I’m not sure investors agree.”

Sternlicht founded Starwood Capital in 1991 after working for Chicago-based JMB Realty Corp. He started Starwood Hotels & Resorts in 1995, and ran the company until 2004 when he stepped down as CEO to become executive chairman. He resigned in 2005 amid a dispute with the board. Starwood Hotels, based in Stamford, Connecticut, is no longer affiliated with Starwood Capital.

‘Branding Guy’

“I’m a branding guy -- I did that,” Sternlicht said in the interview. “I’m doing that again. I think we could have gravitas, a real clout, in consumer areas.”

Sternlicht is on the boards of cosmetics maker Estee Lauder Cos. and furnishings retailer Restoration Hardware Holdings Inc. “Those are interesting businesses to me in design, distribution,” he said.

Sternlicht has resuscitated his hotel-condominium idea, called 1 Hotels, in New York after halting construction in Seattle in late 2007 as the U.S. credit crisis deepened. He’s building a Baccarat hotel in Manhattan to be decorated with crystal chandeliers by the French glassware maker his firm bought in 2005, and also plans Baccarat hotels in Morocco, China, Dubai and Tunisia.

He also is investing in malls. Starwood Capital in June bought a 90 percent stake in seven U.S. shopping centers from Australia’s Westfield Group and formed a new unit called Starwood Retail Partners to oversee the assets and form partnerships “to enhance the shopping and entertainment experience of each location.” The properties are “doing well,” Sternlicht said in the interview.

Retail Space

“Tenants are looking for space,” he said. “The death of the middle class is probably a little exaggerated.”

Starwood in 2010 invested $150 million with San Ramon, California-based homebuilder TRI Pointe Homes LLC. The business will probably sell 300 or 400 homes this year, which “for a startup is good,” he said last week at a New York conference sponsored by the University of Wisconsin and Toll Brothers Inc.

The housing recovery has been driven partly by private-equity investors buying foreclosed homes for rent, a strategy about which Sternlicht has voiced skepticism. His Starwood Property Trust Inc., which makes and buys commercial mortgages, acquired 252 foreclosed houses for $27.3 million in May and June, according to a regulatory filing. Blackstone has spent about $1.5 billion buying foreclosed houses this year and Colony Capital LLC has spent more than $500 million as of last month.

“The great debate is, is it an asset class that can be rolled up?” Sternlicht said during the TV interview. “Can there be an institutional owner of single-family homes, or is it like the laundry room, laundromats,” which tend to be local businesses owned by individuals, he said.

New Fund

Starwood Capital has raised almost $16 billion of equity since inception. It’s gathering about $3 billion for its ninth real estate opportunity fund.

The new fund has made about 18 investments using about $1.1 billion of equity, Sternlicht said Nov. 30.

His other businesses include Starwood Energy Group, a fund that invests in power transmission, natural gas and wind and solar-power-generation facilities throughout North America; hedge fund Starwood Real Estate Securities; and SH Group, the hotel-management company that owns the 1 Hotels & Resorts brand and the Baccarat hotel license.

“We’re going to do a couple of more things in the public markets,” Sternlicht said at the Nov. 30 conference.

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