Starwood Eyes $2.8B Hotel Shopping Spree after Closing Two Funds

Courtesy Flickr Creative Commons user Fluffy Steve2

By Barbra Murray, Contributing Editor

Starwood Capital Group has just closed two funds totaling $2.8 billion in ample time to capitalize on a market loaded with discounted and distressed assets. The private investment firm disclosed Friday that it raised $1.8 billion for Starwood Global Opportunity Fund VIII (SOF VIII), its biggest fund to date, and nearly $1 billion for Starwood Capital Global Hospitality Fund II (Hotel II).

 Eyeing both properties and debt, SOF VIII will seek to capitalize on opportunities in the distressed real estate market, which, according to a recent report from Deloitte, included assets valued at more than $174 billion in the U.S. alone as of January. Starwood has already made some hefty investment plays during the past several quarters. In March, the company partnered with TPG Capital and Five Mile Capital Partners in a $905 million recapitalization of struggling Extended Stay Hotels Inc. And in October 2009, Starwood joined forces with TPG Capital, Perry Capital and WLR LeFrak to acquire a $4.5 billion Corus Bank portfolio of distressed commercial real estate loans and REO assets from the Federal Deposit Insurance Corporation.

 With $1 billion to play with, Hotel II won’t ignore beleaguered hotel assets, but it won’t focus on them exclusively, either. The fund will target both distressed and non-distressed hotels as well as other hospitality-related assets. There’s plenty of room for buyers in the market. Transaction volume in the U.S. plummeted 70 percent last year for nationally branded full-service properties and declined 54 percent for flagged limited-service properties, according to a report by Marcus & Millichap Real Estate Investment Services Inc. At the close of 2009, approximately $32 billion of hotel assets were considered distressed, with hard-hit gaming meccas Las Vegas (pictured) and Atlantic City suffering the worst of it.

 Both SOF VIII and Hotel II closed five years after their predecessors. SOF VII closed in 2005 with nearly $1.5 billion in commitments for investment in undervalued real estate and related assets in various real estate sectors across the globe. Starwood Capital Hospitality Fund I L.P. wrapped up after raising $900 million.