Archive for the ‘Commercial Real Estate’ Category

Hedge Fund Pershing Square’s 1st Quarter 2012 Letter (Bill Ackman)

Monday, June 25th, 2012

Bill Ackman, legendary activist investor recently published its 1st quarter investment letter. The fund has performed strongly to date, with 9.3% returns and has large holdings in Canadian Pacific, General Growth Properties, Citigroup, and J.C. Penney. If he still owns them, the latter two companies may create some trouble for his firm in the future.

In this investor letter, Ackman discusses the idea of time arbitrage, which is taking advantage of forced sellers for the benefit of long term profit. This is because stocks are often more volatile than their underlying businesses, and few firms and individuals can stomach volatility.

He also discusses that private equity portfolio companies, because of their higher implied leverage, have much more volatile returns, but unfortunately, you do not see a mark-to-market as you do in publicly traded equities.

Enjoy the letter below:


Starwood to Raise $2.8 Billion to Invest in Distressed Real Estate Debt

Thursday, April 1st, 2010

Starwood, the commercial real estate investment firm started by Barry Sternlicht is raising approximately $2.8 billion purchase commercial real estate debt  during the biggest commercial real estate dislocation of the decade.   The Starwood Global Opportunity Fund VIII will target property and distressed debt.  Recently, Starwood’s second hospitality fund also raised $1 billion.  Sternlicht has been extremely bullish on specific deals in the market because of his close relationship with the FDIC.  He believes that most regional banks are essentially bankrupt, and this is the perfect opportunity to scoop up cheap real estate debt at 50 cents to the dollar.

According to Mr. Keehner of Bloomberg, “Starwood Capital Group LLC, the investment firm founded by Barry Sternlicht, finished raising capital for two funds totaling about $2.8 billion that will invest in real estate.

The Starwood Global Opportunity Fund VIII, which will target distressed debt and property, took in more than $1.8 billion, according to a person familiar with the effort. The Hospitality Fund II, which will invest in hotels, attracted almost $1 billion, said the person, who declined to be identified because the deal is private.

Starwood had previously raised about $10 billion of equity for 11 funds and other investments, according to documents from JPMorgan Chase & Co., which helped the firm find investors. Starwood is leading a plan to bring Extended Stay Hotels Inc. out of bankruptcy and purchased loans in October from failed Chicago-based lender Corus Bankshares Inc. as the real estate market reels from a 40 percent drop in commercial property values from its 2007 peak.

“Raising new capital in this environment speaks to the team at Starwood and the deals they’ve been able to get done,” said Dan Fasulo, managing director of New York research firm Real Capital Analytics Inc. “Barry and his team are one of the few that have been able to put money to work in the past few months.”

Starwood Global Opportunity Fund VII, which closed in 2005 with commitments of $1.48 billion, was up 3 percent as of January, according to the person. Starwood Capital Hospitality Fund I, which closed in 2005 with commitments of $900 million, was up 10 percent, the person said.

FDIC Loans

Starwood plans to invest much of the new opportunity fund’s capital in the U.S., targeting distressed borrowers, lenders and banks taken over by the Federal Deposit Insurance Corp.

“Everyone knows of somebody who’s in trouble with something in real estate today,” Sternlicht, 49, said on a Feb. 11 call with potential investors, a recording of which was obtained by Bloomberg News. “It’s a great opportunity for us.”

Starwood, based in Greenwich, Connecticut, led a group in October that won part of a $4.5 billion portfolio of real estate assets that belonged to Corus before regulators took over the Chicago-based lender in September.

Starwood and its partners outbid their nearest competitor for the portfolio by more than $100 million, or 20 percent, people familiar with the sale said at the time. Sternlicht said on the call that Starwood is “spending a lot of time with the FDIC.”

Most regional banks in the U.S. are “effectively bankrupt,” Sternlicht said, providing an opportunity as $1.2 trillion of real-estate debt matures over the next four years.

Carlyle Hotel

Starwood Capital may also acquire distressed properties by taking positions in the debt, said Sternlicht, including the Carlyle Hotel on Manhattan’s Upper East Side. The firm bought mezzanine loans backed by the hotel for 50 cents on the dollar around January 2009, he said.

The Carlyle, owned by Rosewood Hotels and Resorts LLC, has seen cash flow drop since Starwood Capital bought the note, Sternlicht said.

“We’re just hoping they trigger a covenant,” Sternlicht said of the loan, which matures next March, adding that his firm could wind up owning the hotel for $400,000 per guest room, or about 30 percent of replacement cost. “We take over management; that would be a windfall.”

Sternlicht is also trying to take over ailing Las Vegas casino-owner Riviera Holdings Corp. four years after a bid he backed was shot down by shareholders.

Riviera Deal

Starwood Capital, along with “some friends,” bought control of Riviera’s first mortgage for about 50 cents on the dollar and is leading creditors negotiating a prepackaged bankruptcy, Sternlicht said. Riviera, which owns a Colorado casino in addition to the 55-year-old Las Vegas resort, defaulted on a $245 million loan in February 2009.

“We are now working to take the company through a pre- pack,” Sternlicht said. “It’s going very well. We lead the creditors’ committee there.”

Starwood Capital could own Riviera’s 26-acre resort for “about $5,000 a room, which is less than the cost of the furniture,” Sternlicht said on the call, without saying how much Riviera debt it held. “I’m thinking of it as a long-term parking lot. We’re just going to hold it and have very little invested in the deal.”

Starwood Capital is also working on a restructuring with “a multi-billionaire who has a large real estate portfolio,” Sternlicht said on the call. He didn’t name the person.

“Those are exciting opportunities when you have few competitors,” he said. “Most of our competitors are mortally wounded, especially the Street.”

Sternlicht founded Starwood Hotels & Resorts Worldwide Inc. in 1995 and was that company’s chairman and chief executive officer for almost a decade. Brands include the W, Sheraton and Westin.

He raised $810 million through an initial public offering of Starwood Property Trust Inc., a REIT. Shares have since dropped 3.5 percent.”

According to USA Today, “Starwood Hotels & Resorts opened it 1000th hotel  – the Sheraton Qiandao Lake Resort located on China’s Qiandao Lake.

“This hotel is emblematic of both our history and our bright future,” says Frits van Paasschen, CEO of Starwood, in a statement, adding Sheraton was the first international hotel to open in China in the early 1980s.

Starwood also says it plans to open 300 more hotels in the next three to four years.  “For the first time we have more hotels outside the U.S. than inside. And there is no more fertile ground to grow than in China where we plan to double our footprint to 100 hotels by 2012,” van Paasschen says.

In 2010, Starwood expects to open 80 to 100 more hotels, and about 70% of them will be outside the U.S.

In China, Starwood will open more than 20 hotels this year. In India, another growing market, Starwood has 26 hotels and plans to increase the total by 60% by the end of 2012.”