The Real Deal New York

Sternlicht raises money for new fund, seeks greater leverage

Stephen Ross, Michael Fascitelli, Marc Holliday, Larry Silverstein, William Mack, Bill Rudin weigh in on the state of the market

November 18, 2011 11:51AM
By Katherine Clarke

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Starwood Capital is raising money for a new investment fund, CEO Barry Sternlicht said yesterday at NYU Schack’s capital markets conference at the Waldorf Astoria Hotel, and may also choose to sell a key portfolio as the government discourages the fund from leveraging its assets (see photos from the day-long event above).

“We want to leverage the portfolio and the government doesn’t want us to,” he said. “We’re going to have to sell it because it’s stupid to own it unleveraged. Our leverage levels are less than 30 percent. It’s crazy.”

Starwood previously raised $2.8 billion through two funds in 2010 — the Starwood Global Opportunity Fund VIII, which raised more than $1.8 billion, and the Starwood Capital Global Hospitality Fund II, which raised $965 million, The Real Deal previously reported. Since then, the company has bought a 40 percent stake, or $554 million, in Corus Bank’s distressed loan portfolio, purchased 1414 Sixth Avenue for $72 million and put $400 million towards building a 120-room hotel and 140,000-square-foot condominium project at the former Donnell Library at 20 West 53rd Street.

“We’re almost out of money, actually. We’re raising a new fund now,” Sternlicht said.

Though the Starwood honcho and W Hotel founder said it’s much harder for the fund to make huge profits without leverage, he conceded that it may be wise, given the global economic outlook, to keep risk to a minimum.

“You have no idea where the tentacles of these jellyfish go,” he said of the ramifications of fluctuations in the global economy. “It’s hard to make huge multiples without rental growth, without leverage.”

Sternlicht, who also founded Starwood Hotels & Resorts, said he wanted to set the record straight on why he resigned as executive chairman of that company in 2005.

“I’d done a lot of what I wanted to do in the hotel space. We were in a really good place. Elmer Fudd could have run the company,” he said.

Sternlicht said that he grew tired of being head of a public company, which left him open to scrutiny. Newspapers, he said, wrote false stories about him and intruded into his personal life.

“I grew numb to some of the things I read about myself, including the fact that I had a fourth child,” he joked. “I thought I only had three kids. I got home that night and asked my wife ‘is there something I don’t know about?’ You learn very quickly that perception is more important than reality.”

Other guests at the conference included Marc Holliday, CEO of SL Green; Michael Fascitelli, president of Vornado Realty Trust; Stephen Ross, CEO of the Related Companies; Larry Silverstein, CEO of Silverstein Properties; Bill Rudin, CEO of Rudin Management, and William Mack, founder of Area Property Partners.

Holliday said his firm is still concentrating its attentions on Midtown Manhattan and site re-development.

“The difficulties that we see in developing on a non-subsidized basis are great,” he said. “We orient ourselves towards re-development. There’s very little land left in core Midtown. We ration and re-invest.”

The one exception to that rule, he said, is a 23-story Pace University dormitory with three stories of retail that the company is building at 180 Broadway in the Financial District.

Land is difficult to find, agreed Silverstein, but “you just have to be here, be sensitive and be ready to go.”

Ross, who noted that a lot of New York’s office inventory was dated, took the opportunity to rail against the unions, which he said are holding New York development back.

“The unions have won,” he said. “We can build the same building in Chicago at 50 percent of the cost of in New York. But materials costs are the same… It’s not the wages, it’s the work rules. Working with the unions, it’s hard to compete with other parts of the country. The best thing that could happen to New York is it would become an open shop town.”

After the panel discussion, The Real Deal caught up with Joseph Moinian, who was in attendance. Moinian is still shopping around his development site at 605 West 42nd Street, he said, and has had some interest, but he declined to elaborate.

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