Barry Sternlicht
of Starwood

Opportunity real estate funds are increasingly testing out a new profit-making strategy, investing in riskier real estate — such as distressed properties or those with large vacancies — in the hopes of yielding larger returns, the Wall Street Journal reported.

During the downturn, private equity and pension funds generally invested in safe properties in healthy markets. But the increased demand for these assets has driven up prices, according to the Journal. [more]

Banks and private equity firms are eagerly throwing their hats in the ring for the approximately $9.5 billion U.S. real estate portfolio on offer from Anglo Irish Bank, the Wall Street Journal reported. The largest single commercial property loan sale since the start of the recession, complete with a number of troubled loans, the portfolio has attracted much attention from investors in distressed property.
By the deadline yesterday, the Blackstone Group, Lone Star Funds, LNR Property, TPG Capital, Colony Capital, Area Property Partners, Starwood Capital Group, Five Mile Capital Partners and the CIM Group had all submitted or were intending to sumbit bids for at least some portion of the portfolio, sources said. The portfolio has also attracted the interest of banks, including Wells Fargo, JPMorgan Chase and Bank of America, given that there are three portfolios of loans that are performing and expected to mostly stay that way through maturity, the Journal said. [more]

Pensam Capital, a Miami-based real estate investment firm, has scooped up Bryan Davis, formerly an analyst for Starwood Capital Group, to serve as a senior financial analyst, according to the company. Davis will work primarily in loan and acquisition underwriting for the company, which serves South Florida and regions to the north. Pensam, which provides bridge, mezzanine and equity financing, was founded in October 2009 and has staged a rapid hiring expansion since its launch. TRD

Starwood Capital Group, best known for its W Hotels brand, is planning to up its bid for bankrupt hotel chain Extended Stay, a lawyer for the company said in court. Starwood had been previously outbid by a group of investors led by Ceterbridge Partners and Paulson & Co. and joined yesterday by Blackstone Group, who offered $905 million for the 680-property chain. The offer is considered by the investors and by Extended Stay to be the stalking horse bid, meaning other offers would need to exceed it. Extended Stay filed the largest-ever bankruptcy in the hotel industry in June with $7.6 billion in debt. The deadline for proposals is May 17 and an auction is scheduled for May 27. [Bloomberg]

Private equity firm Blackstone Group is looking to buy a minority stake in Extended Stay, a now-distressed hotel chain it sold in 2007 for $8 billion, according to the Wall Street Journal. Blackstone’s approximately $100 million investment would be part of a larger, $905 million potential buy-up of the troubled hotel company, made by a group of investors led by Centerbridge Partners and Paulson & Co. The companies’ bid for the 680-property hotel chain, whose bankruptcy filing is the largest ever recorded in the hotel industry, is a direct challenge to a similar buy up proposed by Starwood Capital Group, the company whose hotel branch is best known for its line of W Hotels.

Extended Stay Hotels announced yesterday that it’s accepting a $905 million investment offer from Starwood Capital Group and associated investors in order to exit bankruptcy, according to the Associated Press, after turning down a recent proposal from Centerbridge Partners. The deal will reportedly allow Extended Stay to reduce its debt load exponentially, to $2.8 billion from $7.4 billion. The company board described the Starwood-led offer as “superior” to the Centerbridge offer, noting the diversity of the investment between equity and a cash option.

A massive U.S. commercial real estate crash is in its beginning stages, billionaire Wilbur Ross said today. The WL Ross & Co. CEO, who is also working on a government program to rid banks of their toxic assets, said he is practicing extreme caution on the commercial real estate investments front, especially with regard to office spaces, which are rapidly shedding tenants. Though the Public-Private Investment Program has made $1.5 billion in pooled government and private funds available to his company for purchasing banks’ distressed assets, Ross said he had used less than $100 million of those funds by Oct. 15, and that the money he spent went toward residential mortgage-backed securities rather than commercial properties. Earlier this month, WL Ross, along with several other firms led by Starwood Capital Group and TPG, agreed to buy $4.5 billion in real estate from the seized Corus Bankshares, after the bank’s investments in construction loans for condominiums went sour. [Bloomberg]

An investment group headed by Starwood Capital Group beat out the Related Companies, Lone Star Funds and Colony Capital to win a 40 percent stake in a company created by bank regulators to contain the assets of Corus Bank. The bank was seized last month by the Federal Deposit Insurance Corporation, and has a $4.5 billion loan portfolio that includes many failed South Florida condominium projects. The winning consortium includes TPG Capital (formerly Texas Pacific Group), Perry Capital and WLR LeFrak, a venture that involves investor Wilbur Ross and real estate company the LeFrak Organization. The winning bidder got the assets for a roughly 40 percent discount in a cash and debt deal.