With the recent launch of Baccarat Hotels & Resorts in New York and 1 Hotels in Miami Beach and New York, Barry Sternlicht has returned to the forefront of hotel development and is out to one-up his own historic launch of W Hotels in 1998.
The 54-year-old chairman and CEO of Starwood Capital Group (SCG), Greenwich, Connecticut, has US$42 billion of assets in his portfolio and recently sold the first Baccarat in New York for a record price of more than US$2 million per key. But it his creative juices and entrepreneurial spirit that seemingly has him most excited about developing his two new brands under his now three-year-old SH Group management company.
HOTELS sat down with Sternlicht in early April to talk about his ongoing hotel development plans and his current inspirations. The full cover story will be published in the June issue of HOTELS’ Investment Outlook.
“Both (Baccarat and 1) are labors of love. They are more fun than they are material to our enterprise or investors,” Sternlicht said. “But to me they are important because they are follow-ons to W. That’s why I had to do a brand with a purpose in 1. I didn’t want to do just another brand.”
Of the two brands, Sternlicht said 1 has more legs and could have a very good run, but he enjoys having both. “They mean something. That is what I like about them,” he added. “They both have a reason for living. It is not a me-too. It’s not your 75th boutique brand.”
In either case, Sternlicht said now he is ready to hit the gas with both brands. “We got the kinks out, and we are ready to talk to more partners,” he said. “Our team is set. In fact, we are overloaded with talent for the scale of our group, and that’s okay.”
‘Serious’ about Baccarat
Baccarat, a US$150 million “throw in” from the Société du Louvre deal, was a few weeks old when Sternlicht sat down with HOTELS, and already he was boasting about a hopping bar scene before the hotel was fully open. “I really like what we did at Baccarat as it has never been seen before. I use that as my metric about design,” Sternlicht said.
When asked how big Baccarat can become, Sternlicht’s initial estimate is 25. “It would be epic,” he said. “There are a lot of key cities for travel and then resorts. I can name the cities. But there is no rush.”
For the moment he is working on finishing the Baccarat at the Pearl in Dubai and in Rabat, Morocco, which SCG is doing with the king’s sister. “We need to get our operating legs under us, so we are not in a rush to sign hotels,” Sternlicht said.
But in the next breath, he added, “But we just hired a head of development, so you know we are serious now.”
Sternlicht said SCG will consider everything from full ownership to management for the brand, adding, “We don’t want to screw this up. We are going to be really involved, and if we don’t have an ownership position it seems like a waste of time for a small management fee. I don’t know. We’ll see.”
1 up to the test?
When it comes to the growth of 1, Sternlicht believes it is in a big enough segment that SCG could have a very good run developing the brand. “I think we can price to our affinity group and people will pay more,” he said.
After false-starting the brand’s launch in 2007, the first 1 hotel opened in Miami Beach in early April, and Sternlicht said the feedback has been very positive. “It is clean and fresh and different,” he added.
But for the brand to truly have legs, Sternlicht admitted SCG has to complete a new-build hotel. “Brooklyn is a new 1, so that will be first test of real cost of delivery of our product because with renovations you get away with a lot,” he said.
SCG’s broad plans
Aside from Baccarat and 1, Sternlicht did admit he is preparing to launch another brand likely at the lower end of the spectrum and almost assuredly different from the pack. He also expects to take some 300 limited-service hotels in the SCG portfolio public — probably later this summer, he said. And ever the dealmaker, Sternlicht said he continues to think about selling shares in his parent company, but that nothing is imminent.
Having just completed a 10th fund raise of US$5.6 billion, of which US$2.3 billion is already invested, Sternlicht is armed and ready to further grow the SCG portfolio, adding, “We’ll go from asset class to asset class. If we think hotels are good to do we will. But we are and will remain agnostic.”
Sternlicht is also excited about the redevelopment of the Principal Haley assets in the United Kingdom acquired in early 2013, as well as the small Four Pillars and De Vere Venues portfolios it took down in early 2014. SCG will sell some of the smaller rural hotels and is in the process of rationalizing and deciding how to invest in some 60 to 70 hotels in the United Kingdom.
Once the process is completed, Sternlicht said the core properties are going to go into a new company called the Principal Hotel Group, which he compared to the old Grand Heritage Collection in the United States. “There are some amazing city-center assets with enormous foot traffic of which they are capturing none,” he said. “Timing was really good on acquisitions, and the portfolio is performing really well — even before we renovate.”
Back in the United States, SCG’s other big play came late in 2013 when it acquired the 85-hotel, 10,800-room InTown Suites portfolio from Kimco Realty for US$735 million. In February of this year it was able to land a US$500 million loan to refinance the budget extended-stay portfolio. Sternlicht said SCG plans to renovate the base of the portfolio, build the network and “see if we can get into the franchise business.”